Who Ultimately Bears the Burden of Greater Non-Wage Labour costs?

Abstract

We investigate the effect of a rise in non-wage labour costs (NWLC) on real manufacturing labour costs in OECD countries, taking into account the degree of coordination in the wage bargaining process. We find that, in countries in which wage bargaining is not highly coordinated, 55% of an increase in NWLC appears to be shifted to workers in the long run, whereas in countries operating under a highly coordinated bargaining regime, full shifting occurs. Overall, our results suggest that high NWLC can be associated with a high equilibrium unemployment rate, but only in those OECD countries that do not have highly coordinated wage bargaining.labour costs, tax wedge, wage determination, bargaining coordination