We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980?s and 1990?s affected the labor market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This...

To many economists the public's support for the minimum wage (MW) institution is puzzling, since the MW is considered a “blunt instrument” for redistribution. To delve deeper in this issue we build models in which workers are heterogeneous in ability. In the first model, the government does...

Building upon a continuous-time model of search with Nash bargaining in a stationary environment, we analyze the effect of changes in minimum wages on labor market outcomes and welfare. While minimum wage increases invariably lead to employment losses in our model, they may be welfare-improving...

We model how unemployment benefit sanctions - benefit reductions that are imposed if unemployed do not comply with job search guidelines - affect unemployment. In our analysis we find that not only micro effects concerning the behavior of individual unemployed workers are relevant, but also...

Many European labor markets are characterized by heavy employment protection taxes and the widespread use of fixed-duration contracts. The simultaneous use of these two policy instruments seems somewhat contradictory since the former primarily aims at limiting job destruction whereas the latter...

We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for...

We consider an economy characterised by involuntary unemployment among low skilled workers, and investigate the implications for employment and income of welfare schemes often advocated as less distortionary. We show that reducing unemployment benefits in favour of income subsidies (social...

This paper sets up a general oligopolistic equilibrium model with unionized labor markets. By accounting for productivity differences, the model features profit and wage differentials across industries. We use this setting to study the impact of trade liberalization on employment, welfare, and...