Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing

Erkki Koskela

No 5313, IZA Discussion Papers from IZA Network @ LISER

Abstract: What are the impacts of labor tax reform on wage setting and employment to keep the relative tax burden per low-skilled and high-skilled workers constant in the case of heterogeneous domestic labor markets, i.e. imperfect competition in low-skilled labor and perfect competition in high-skilled labor in the presence of outsourcing? A higher degree of tax progression by raising the wage tax and the tax exemption for the low-skilled workers will decrease the wage rate and increase labor demand of low-skilled workers, whereas it will decrease (increase) employment of high-skilled workers in CES utility function when the elasticity of substitution between consumption and leisure is higher (lower) than one. A higher degree of wage tax progression for the high-skilled worker will have no effect on the high-skilled wage in the presence of CES utility function.

Keywords: heterogeneous domestic labor markets; wage bargaining; impacts of labor taxation; outsourcing (search for similar items in EconPapers)
JEL-codes: E24 H22 J21 J31 J51 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-11
New Economics Papers: this item is included in nep-lab, nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://docs.iza.org/dp5313.pdf (application/pdf)

Related works:
Working Paper: Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp5313

Access Statistics for this paper

More papers in IZA Discussion Papers from IZA Network @ LISER Contact information at EDIRC.
Bibliographic data for series maintained by Mark Fallak ().