Luke Haywood, Michael Neumann
Labour supply in the market for marginal employment in Germany is strongly influenced by nonlinearity in the tax schedule - even for individuals to whom this tax schedule does not apply. We present a simple job search model in which workers are influenced by their peers' labour supply in equilibrium. Our model includes two fundamental constraints: contract adjustment costs and limited information about offers. Together these create an incentive for firms to select contracts as a function of their expected attractiveness to workers. Every worker's labour supply thereby becomes a function of preferences among the population of job-seekers. We apply our model to the market for marginal employment in Germany. We validate our model using a reform to the tax schedule. The model allows us to perform counterfactual policy analyses, including new estimates of tax incidence.
Themen: Arbeit und Beschäftigung
Keywords: Job Search, Peer Effects, Labour Supply Elasticities
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