Accounting for labor gaps

Francois Langot and Alessandra Pizzo

European Economic Review, 2019, vol. 118, issue C, 312-347

Abstract: This study explains the impact of taxes and labor market institutions on the total hours observed in France, Germany, the United Kingdom, and the United States. We develop a balanced growth model with matching frictions in the labor market distinguishing between the extensive margin and intensive margin of labor supply. We show that (i) hours are more sensitive to changes in taxes, whereas employment reacts more to shifts in labor market institutions and (ii) a substitution effect exists between employment and hours. Counterfactual experiments show that if France had experienced the same trend in labor market institutions as the United States, its employment rate would have increased by 25 percentage points, whereas its number of hours worked per employee would have reduced by 1 percentage point. If France had chosen the US’ paths of both taxes and labor market institutions, then its employment rate would have been larger by 20 percentage points and the number of hours worked by employees would have been larger by 3 percentage points than the current one, a situation observed before the 1970s.

Keywords: Taxes; Labor market institutions; Hours; Employment; Labor market search (search for similar items in EconPapers)
JEL-codes: E20 E60 J22 J60 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Accounting for labor gaps (2019)
Working Paper: Accounting for labor gaps (2019)
Working Paper: Accounting for Labor Gaps (2018)
Working Paper: Accounting for Labor Gaps (2018)
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Working Paper: Accounting for Labor Gaps (2015)
Working Paper: Accounting for Labor Gaps (2015)
Working Paper: Accounting for Labor Gaps (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:118:y:2019:i:c:p:312-347

DOI: 10.1016/j.euroecorev.2019.05.018

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