Employment and Deadweight Loss Effects of Observed Nonwage Labor Costs

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 data set, 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 nonwage 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%." ("JEL" J23, J32) Copyright (c) 2009 Western Economic Association International.

Matching bias in labor demand estimation

“…An augmented version of this procedure can be applied to measure the employment and deadweight loss e¤ects of non-wage labor costs. SeeAguilar and Rendon (2007).…”

The Prospects of the Baby Boomers: Methodological Challenges in Projecting the Lives of an Aging Cohort

“…The increase would also go along with a hike in nonwage labor costs which is typically opposed by employers who fear a comparative disadvantage in selling and producing goods (Aguilar and Rendon 2010). Therefore, policymakers opted for keeping contribution rates stable in the public pension scheme, but promoted investments in private pension funds (the so-called Riester-Rente) through subsidies and tax breaks (Berner 2006).…”