Complementarity Between Low- and High-Skilled Workers and the Employment Impact of Tax versus Human Capital Policies

Clément Carbonnier

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Abstract: The present paper analyses theoretically the impact of substitutability and complementarity between labour market segments on the efficiency of policies tackling low-skilled unemployment. Based on a search and matching model with multiple segments interacting through the production function, it is shown that the efficiency of cost policies-decreasing payroll taxes on low-skill segments-increases with the segments' substitutability. Reducing the relative cost of low-skill labour-through tax wedge decrease-induces labour demand increase if low-skill labour is substitute to other production factors. The efficiency of productivity policies-upgrading workers from lower to higher-skill segments-increases with their complementarity. Enhancing human capital allows increasing production-constrained by the scarcity of high-skill labour-hence increases low-skill labour demand if factors are complements. Consequently, variations of the efficiency of both policies may derive from the technological change, modifying the complementarity between segments.

Keywords: H32 D78 J64 Unemployment Policies Labor Taxation Workforce Skills; H32; D78; J64 Unemployment Policies; Labor Taxation; Workforce Skills (search for similar items in EconPapers)
Date: 2020
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Published in Annals of Economics and Statistics, 2020, 138, pp.49. ⟨10.15609/annaeconstat2009.138.0049⟩

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Journal Article: Complementarity Between Low- and High-Skilled Workers and the Employment Impact of Tax versus Human Capital Policies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04269513

DOI: 10.15609/annaeconstat2009.138.0049

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