Skip to main content
Article thumbnail
Location of Repository

Would cutting payroll taxes on the unskilled have a significant effect on unemployment?

By Stephen Nickell and Brian Bell

Abstract

This paper states two recommendations from an OECD Report: (1) "Reduce non-wage labour costs, especially in Europe, by reducing taxes on labourà" (2) "Reduce direct taxes (social security and income taxes) on those with low earningsà". After looking at the first recommendation we conclude that any attempt to generate a significant reduction in the unemployment rate by cutting across-the-board tax rates on employment is likely to fail. We then turn to the second recommendation and give three arguments as to why it may be a good idea. The remainder of the paper investigates the arguments. We look at why the unemployment rate of the unskilled might be higher than that of the skilled, and how we might expect their relative unemployment rates to respond both to relative demand shocks and to more natural shocks. We then examine the facts - what has happened to relative unemployment (and non-employment) rates, and wage rates throughout the OECD. Finally, we discuss the implications of these facts for the proposed policy measures

Topics: HD Industries. Land use. Labor
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1996
OAI identifier: oai:eprints.lse.ac.uk:20687
Provided by: LSE Research Online

Suggested articles

Citations

  1. (1994). An Introduction to the Wage Curve', doi
  2. (1994). Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures', doi
  3. (1994). Changes in the Relative Demand for Skills in the UK Labor Market' doi
  4. (1987). Cointegration and Error Correction: Representation, Estimation and Testing', doi
  5. (1993). Cointegration, Error-Correction and the Econometric Analysis of Non-Stationary Data, doi
  6. (1992). Cross-Country Patterns of Change in Relative Wages', NBER Working Paper 4085: Cambridge. doi
  7. (1993). Differentials in Urban Unemployment Rates Across Indian States', Wolfson College:
  8. (1991). Discussion of Juhn et al.',
  9. (1990). Employment Outlook, doi
  10. (1986). Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence', doi
  11. (1989). Invalidity Benefit: Report by the Comptroller and Auditor General,
  12. (1993). Labour Demand, doi
  13. (1994). North-South Trade, Employment and Inequality: Changing Fortunes in a Skill Driven World, doi
  14. (1987). Real Wages and Taxation in Ten OECD Countries', doi
  15. (1988). Statistical Analysis of Cointegration Vectors', doi
  16. (1978). The Effect of Collective Bargaining on Relative and Absolute Wages', doi
  17. (1988). The NAIRU: Some Theory and Statistical Facts'
  18. (1994). The OECD Jobs Study: Facts, Analysis, doi
  19. (1986). The Rise in Unemployment: A Multi-County Study', doi
  20. (1994). The Wage Curve, doi
  21. (1986). Wage Determination and Recession: A Report on Recent Work', doi
  22. (1991). Why Has the Natural Rate of Unemployment Increased over Time', Brookings Papers in Economic Activity, doi
  23. (1987). Why is Wage Inflation in Britain So High', doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.