Author:
Bennmarker Helge,Calmfors Lars,Seim Anna
Abstract
Abstract
Although there is a large literature on employment effects of earned income tax credits (EITCs) and unemployment benefits, less is known about wage effects. In our model, the impact is via the net (after-tax) replacement rate. Using a panel of individuals from Sweden, we find a positive relationship between the net replacement rate and wages with semi-elasticities in the range 0.2-0.4. This implies that a one per cent reduction in the unemployment benefit level or a one per cent increase in the net-of-tax rate is associated with a fall in the before-tax wage of 0.1-0.2 per cent. EITCs and unemployment benefit reductions are thus likely to induce wage moderation.
Keywords: Earned income tax credit, Unemployment benefits, Wage formation.
Subject
Organizational Behavior and Human Resource Management,Economics and Econometrics,Industrial relations
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