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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, is it possible to determine their effects on
indicators of well-being, such as mental health and life satisfaction, or on
the acquisition of human capital?
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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?
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Reliable estimates of taxpayer effects are
essential for complete economic analyses of the costs and benefits of
immigration
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
society.
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Workers and policymakers may fear that
privatization leads to job losses and wage cuts, but what’s the empirical
evidence?
Conventional wisdom and prevailing economic
theory hold that the new owners of a privatized firm will cut jobs and
wages. But this ignores the possibility that new owners will expand the
firm’s scale, with potentially positive effects on employment, wages, and
productivity. Evidence generally shows these forces to be offsetting,
usually resulting in small employment and earnings effects and sometimes in
large, positive effects on productivity and scale. Foreign ownership usually
has positive effects, and the effects of domestic privatization tend to be
larger in countries with a more competitive business environment.
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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.
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After three recessions, a new emphasis on the importance of collective institutions and social dialogue is emerging
Old and new EU member states still adopt quite different labor market institutions and policies: convergence has been partial and limited. Nevertheless, a new agreement is spreading on the importance of well-developed, coordinated institutions, supported by social dialogue, in view of the increasing challenges posed by the macro economy and by the increasing fragmentation of labor markets.
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Happiness is key to a productive economy, and a
job remains key to individual happiness, also under robotization
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 un-employment benefits or a basic income
can contribute to happiness—though when such policies prolong unintended
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, also with substantial
robotization in production.
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Despite major efforts at equal pay legislation,
gender pay inequality still exists—how can this be put right?
Despite equal pay legislation dating back 50
years, American women still earn 18% less than their male counterparts. In
the UK, with its Equal Pay Act of 1970, and France, which legislated in
1972, the gap is 17% and 10% respectively, and in Australia it remains
around 14%. 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.
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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.
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Payroll tax cuts in developing economies might
be beneficial to the formal sector, even when the informal sector is
large
Informal employment accounts for more than half
of total employment in Latin America and the Caribbean, and an even higher
percentage in Africa and South Asia. It is associated with lack of social
insurance, low tax collection, and low productivity jobs. Lowering payroll
taxes is a potential lever to increase formal employment and extend social
insurance coverage among the labor force. However, the effects of tax cuts
vary across countries, often resulting in large wage shifts but relatively
small employment effects. Cutting payroll taxes requires levying other taxes
to compensate for lost revenue, which may be difficult in developing
economies.
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