Progressive income taxation has for some time been recognized to provide incentives for wage restraint in models with imperfectly competitive labour markets. Recent research has established that bargaining over individual working hours may reverse the wage restraining effect such that increased...

In equilibrium models of unemployment, e.g., efficiency wage models, the level of unemployment generally depends on the level of taxes on labor (see, e.g., Johnson and Layard (1986) and Pisauro (1991)). Considering labor taxes levied on firms, the tax authorities may choose between employment...