Redistribution policies

  • Can hiring subsidies benefit the unemployed?

    Hiring subsidies can be a very cost-effective way of helping the unemployed, but only when they are carefully targeted

    Alessio J. G. Brown, June 2015
    Long-term unemployment can lead to skill attrition and have detrimental effects on future employment prospects, particularly following periods of economic crises when employment growth is slow and cannot accommodate high levels of unemployment. Addressing this problem requires the use of active labor market policies targeted at the unemployed. In this context, hiring subsidies can provide temporary incentives for firms to hire unemployed workers and, when sensibly targeted, are a very cost-effective and efficient means of reducing unemployment, during both periods of economic stability and recovery.
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  • Collective bargaining in developing countries

    Negotiating work rules at the firm level instead of the industry level could lead to productivity gains

    Carlos Lamarche, September 2015
    Because theoretical arguments differ on the economic impact of collective bargaining agreements in developing countries, empirical studies are needed to provide greater clarity. Recent empirical studies for some Latin American countries have examined whether industry- or firm-level collective bargaining is more advantageous for productivity growth. Although differences in labor market institutions and in coverage of collective bargaining agreements limit the generalizability of the findings, studies suggest that work rules may raise productivity when negotiated at the firm level but may sometimes lower productivity when negotiated at the industry level.
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  • Corporate income taxes and entrepreneurship

    The type, quality, and quantity of entrepreneurship are influenced significantly by corporate income taxes—though only slightly

    Jörn Block, May 2016
    Corporate income taxation influences the quantity and type of entrepreneurship, which in turn affects economic development. Empirical evidence shows that higher corporate income tax rates reduce business density and entrepreneurship entry rates and increase the capital size of new firms. The progressivity of tax rates increases entrepreneurship entry rates, whereas highly complex tax codes reduce them. Policymakers should understand the effects and underlying mechanisms that determine how corporate income taxation influences entrepreneurship in order to provide a favorable business environment.
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  • Do in-work benefits work for low-skilled workers?

    To boost the employment rate of the low-skilled trapped in inactivity is it sufficient to supplement their earnings?

    Bruno Van der Linden, March 2016
    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?
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  • Do minimum wages stimulate productivity and growth?

    Minimum wage increases fail to stimulate growth and can have a negative impact on vulnerable workers during recessions

    Joseph J. Sabia, December 2015
    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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  • Do payroll tax cuts boost formal jobs in developing countries?

    Payroll tax cuts in developing economies might be beneficial to the formal sector, even when the informal sector is large

    Carmen Pagés, March 2017
    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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  • Do skills matter for wage inequality?

    Policies to tackle wage inequality should focus on skills alongside reform of labor market institutions

    Stijn Broecke, February 2016
    Policymakers in many OECD countries are increasingly concerned about high and rising inequality. Much of the evidence (as far back as Adam Smith’s ) points to the importance of skills in tackling wage inequality. Yet a recent strand of the research argues that (cognitive) skills explain little of the cross-country differences in wage inequality. Does this challenge the received wisdom on the relationship between skills and wage inequality? No, because this recent research fails to account for the fact that the price of skill (and thus wage inequality) is determined to a large extent by the match of skill supply and demand.
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  • Do works councils raise or lower firm productivity?

    Works councils can have a positive impact on firm productivity, but only when specific conditions are in place

    Olaf Hübler, March 2015
    The German model of co-determination (Mitbestimmung) with works councils, in which workers are involved in the management of a company, was a role model for other countries for many years. However, since the 1990s the appeal of works councils has been declining, to the extent that now even employees are sometimes voting against representation. This was recently demonstrated by workers at the Volkswagen factory in Chattanooga, Tennessee, who voted against union representation. An important question for firms and for policymakers is whether the adoption of a works council has a positive influence on a firm’s productivity and what the consequences are for a firm’s profits.
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  • Does increasing the minimum wage reduce poverty in developing countries?

    Whether raising minimum wages reduces—or increases—poverty depends on the characteristics of the labor market

    T. H. Gindling, November 2018
    Raising the minimum wage in developing countries could increase or decrease poverty, depending on labor market characteristics. Minimum wages target formal sector workers—a minority in most developing countries—many of whom do not live in poor households. Whether raising minimum wages reduces poverty depends not only on whether formal sector workers lose jobs as a result, but also on whether low-wage workers live in poor households, how widely minimum wages are enforced, how minimum wages affect informal workers, and whether social safety nets are in place.
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