Bargaining Frictions and Hours Worked

Stéphane Auray and Samuel Danthine

No 1722, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment, (iii) differences in the proportion of part-time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capita, employment, part-time work and hours worked, but the higher is GDP per hours worked. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hour and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation, because while the level of employment is similar in both economies, the share of part-time work is larger.

Keywords: labor market institutions; economic performance; bargaining frictions; models of search and matching; part-time jobs; labor market rigidities (search for similar items in EconPapers)
JEL-codes: E24 J22 J30 J41 J50 J64 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-08
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised published as "Bargaining Frictions, Labor Income Taxation and Economic Performance" in: European Economic Review, 2010, 54 (6), 778-802

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