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

Clément Carbonnier

Annals of Economics and Statistics, 2020, issue 138, 49-76

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: Unemployment Policies; Labor Taxation; Workforce Skills (search for similar items in EconPapers)
JEL-codes: D78 H32 J64 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.15609/annaeconstat2009.138.0049

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