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Does Automatic Wage Indexation Destroy Jobs? A Machine Learning Approach

Gert Bijnens, Shyngys Karimov and Jozef Konings
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Shyngys Karimov: Amazon UK Services Ltd.

De Economist, 2023, vol. 171, issue 1, No 5, 85-117

Abstract: Abstract This paper analyzes the impact of automatic wage indexation on employment. To boost competitiveness and increase employment, Belgium suspended its automatic wage indexation system in 2015. This resulted in a 2% fall in real wages for all workers. In the absence of a suitable control group, we use machine learning for the counterfactual analysis. We artificially construct the control group for a difference-in-difference analysis based on the pre-treatment evolution of treated firms. We find a positive impact on employment of 1.2%, which corresponds to a labor demand elasticity of − 0.6. This effect is more pronounced for manufacturing firms, where the elasticity reaches − 1. These results show that a suspension of the automatic wage indexation mechanism can be effective in preserving employment.

Keywords: Labor demand; Wage elasticity; Counterfactual analysis; Machine learning (search for similar items in EconPapers)
JEL-codes: C13 C53 J23 J31 J38 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10645-023-09418-y

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