Indivisible Labor and Its Supply Elasticity: Do Taxes Explain European Employment?

Lars Ljungqvist () and Thomas Sargent ()
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Lars Ljungqvist: DEPT OF ECONOMICS STOCKHOLM SCHOOL OF ECONOMICS

No 734, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We first scrutinize and challenge Prescott's (2002, 2004) quantitative analysis of the role of differences in taxes in explaining cross-country differences in labor market outcomes, and then defend an alternative model that assigns an important role to cross-country differences in social unemployment insurance institutions that Prescott argues can be safely ignored. In the process, we explore how the assumption of indivisible labor interacts with assumptions regarding the (in)completeness of financial markets and any frictions in the labor market, to determine the labor supply elasticity.

Keywords: Employment lotteries; indivisible labor; labor supply elasticity; taxation; unemployment; unemployment insurance (search for similar items in EconPapers)
JEL-codes: E24 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-ias and nep-mac
Date: 2006-12-03

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