Low-Wage Employment Subsidies in a Labor-Turnover Model of the 'Natural Rate'

Working Papers from Indiana - Center for Econometric Model Research

Abstract: This paper models two kinds of wage subsidy in a model of the natural rate having a continuum of workers ranked by their productivity - a flat wage subsidy and a graduated wage subsidy, each financed by a proportional payroll tax. In the small open economy case, with the graduation as specified, we show that both schemes expand employment throughout the distribution; for those whose productivity is sufficiently far below the mean, take-home pay is unambiguously up, though the tax financing lowers take-home pay at the mean and above.

Keywords: EMPLOYMENT; WAGES; SUBSIDIES (search for similar items in EconPapers)
JEL-codes: E24 H22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1998
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fth:indian:98-004

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