To boost the employment rate of the low-skilled
trapped in inactivity is it sufficient to supplement their earnings?
High risk of poverty and low employment rates
are widespread among low-skilled groups, especially in the case of some
household compositions (e.g. single mothers). “Making-work-pay” policies
have been advocated for and implemented to address these issues. They
alleviate the above-mentioned problems without providing a disincentive to
work. However, do they deliver on their promises? If they do reduce poverty
and enhance employment, can we further determine their effects on indicators
of well-being, such as mental health and life satisfaction, or on the
acquisition of human capital?
Understanding how migration responds to tax changes will aid in setting the progressivity of a tax system
Decreased transportation costs have led to the transmission of ideas and values across national borders that has helped reduce the barriers to international labor mobility. In this context, high-skilled individuals are more likely to vote with their feet in response to high income taxes. It is thus important to examine the magnitude of tax-driven migration responses in developed countries as well as the possible consequences of income tax competition between nation states. More specifically, how does the potential threat of migration affect a country’s optimal income tax policies?
Reliable estimates of taxpayer effects are
essential for complete economic analyses of the costs and benefits of
Taxpayer effects are a central part of the
total economic costs and benefits of immigration, but they have not received
much study. These effects are the additional or lower taxes paid by
native-born households due to the difference between tax revenues paid and
benefits received by immigrant households. The effects vary considerably by
immigrant attributes and level of government involvement, with costs usually
diminishing greatly over the long term as immigrants integrate fully into
Minimum wage increases fail to stimulate growth
and can have a negative impact on vulnerable workers during recessions
Proponents of minimum wage increases have argued
that such hikes can serve as an engine of economic growth and assist
low-skilled individuals during downturns in the business cycle. However, a
review of the literature provides little empirical support for these claims.
Minimum wage increases redistribute gross domestic product away from
lower-skilled industries and toward higher-skilled industries and are
largely ineffective in assisting the poor during both peaks and troughs in
the business cycle. Minimum wage-induced reductions in employment are found
to be larger during economic recessions.
Stronger wage coordination and higher union
density are associated with lower unemployment and higher inflation
Aside from employment protection laws, which
have been converging, other labor market institutions in new and old EU
member states, such as wage bargaining coordination and labor union density,
still differ considerably. These labor market institutions also differ among
the new EU member states, with the Baltic countries being much more liberal
than the others. Research that pools data on old and new EU member states
shows that wage coordination mechanisms can improve a country’s
macroeconomic performance. Stronger wage coordination and higher union
density reduce the response of inflation to the business cycle.
Happiness is key to a productive economy, and a
job is key to individual happiness
Measures of individual happiness, or well-being,
can guide labor market policies. Individual unemployment, as well as the
rate of unemployment in society, have a negative effect on happiness. In
contrast, employment protection and unemployment benefits can contribute to
happiness—though when such policies prolong unemployment, the net effect on
national happiness is negative. Active labor market policies that create
more job opportunities increase happiness, which in turn increases
productivity. Measures of individual happiness should therefore guide labor
market policy more explicitly.
Despite major efforts at equal pay legislation,
gender pay inequality still exists in the developed economies. How can this
be put right?
Despite equal pay legislation dating back 50
years, American women still earn 22% less than their male counterparts. In
the UK, with its Equal Pay Act of 1970, and France, which legislated in
1972, the gap is 21% and 17% respectively, and in Australia it remains
around 17%. Interestingly, the gender pay gap is relatively small for the
young but increases as men and women grow older. Similarly, it is large when
comparing married men and women, but smaller for singles. Just what can
explain these wage patterns? And what can governments do to speed up wage
convergence to close the gender pay gap? Clearly, the gender pay gap
continues to be an important policy issue.
Despite their theoretical benefits, flat taxes
have been tried only in a few formerly socialist countries
The potential economic outcomes resulting from a
flat rate of income tax have been the subject of an ongoing academic and
political debate. Many observers have suggested that the introduction of a
flat tax would be beneficial for a country’s economy, having a positive
influence on the labor market and the gross domestic product by enhancing
incentives to work, save, invest, and take risks. A flat tax also
significantly simplifies income taxation which increases tax compliance and
reduces tax planning, avoidance, and evasion. However, despite flat taxes
being on the political agenda in many countries, in practice their
implementation has mostly been restricted to the transition economy
countries of Eastern Europe. There is no one single flat tax system in place
in these countries though; one rate does not fit all.