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Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs

Giovanna Aguilar Andía () and Silvio Rendon ()

No 2856, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To assess the employment effects of labor costs it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm-worker dataset, we estimate a long run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers’ contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers’ deductions (social security, and income tax). We find that non-wage labor costs reduce employment by 17% for white-collars and by 53% for blue-collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers’ and workers contributions, we find that full compliance would imply employment losses of 4% for white-collars and 12% for blue-collars, with respective associated deadweight losses of 2% and 6%.

Keywords: employment; job creation; deadweight loss; labor costs; labor law (search for similar items in EconPapers)
JEL-codes: J23 J32 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-06
New Economics Papers: this item is included in nep-lab
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Published - published in: Economic Inquiry, 2010, 48 (3), 793 - 809

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Related works:
Journal Article: EMPLOYMENT AND DEADWEIGHT LOSS EFFECTS OF OBSERVED NONWAGE LABOR COSTS (2010) Downloads
Working Paper: Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs (2007) Downloads
Working Paper: Employment and deadweight loss effects of observed non-wage labor costs (2007) Downloads
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