Labour Supply and Incentives to Work in Europe

Labour Supply and Incentives to Work in Europe

Edited by Ramón Gómez-Salvador, Ana Lamo, Barbara Petrongolo, Melanie Ward and Etienne Wasmer

Labour Supply and Incentives to Work in Europe highlights recent developments in the labour supply in Europe and gives a detailed assessment of their link with economic policies and labour market institutions. Despite major changes in European labour supply during the past few decades, the existing literature still lacks a comprehensive study of the relationship between labour supply and labour market institutions from a macro perspective.

DISCUSSION

Pietro Garibaldi

Subjects: economics and finance, labour economics

Extract

Pietro Garibaldi The chapter is a nice contribution to the growing literature on the adverse macroeconomic effects of total taxation (Prescott, 2003; Nickell, 2003). It sets forth a very simple theory of task allocation and shows that market taxation takes away activity from the market towards home production.1 There are strong empirical predictions on the adverse effects of taxation on the aggregate employment rate, as well as on the employment rate in specific sectors of the economy. Using simple bi-variate relationships between employment rates and total taxation, the chapter finds empirical support for the adverse effects of taxation. I organize my comments in three parts. First, I present a graphical illustration of the theory of task allocation presented here by Davis and Henrekson. Second, I discuss the importance of a critical maintained assumption of the authors – namely the elasticity of labour supply – and show how the basic results would change with a more empirical plausible assumption. Third, I offer a further robustness check on the empirical results of the chapter by considering the role of start-up costs, a product market institution that, from a theoretical standpoint, has similar empirical predictions on the labour market. A Theory of Task Allocation Let us assume that there exists a continuum of tasks that can be carried out in two different ways. In other words, we can imagine that each particular task (task B, for example) can be accomplished with two solutions: the market solution, which involves a...

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