Project Details
Projekt
Labor Market Reforms and the Macroeconomic Supply Side in the Short and Long Run
Subject Area
Economic Theory
African, American and Oceania Studies
Economic Policy, Applied Economics
African, American and Oceania Studies
Economic Policy, Applied Economics
Term
from 2014 to 2022
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 256862396
This project continues and extends research conducted in the first period of the Priority Program, which investigated short and long-run impacts of supply-side policy on macroeconomic dynamics, with a strong focus on labor market reforms. The topic remains highly relevant, as the Eurozone has not yet overcome its sovereign debt crisis and structural reforms are indispensable for returning to sustained growth.The first strand of research continues to focus on the role of social security systems and their finance as an impediment to macroeconomic recovery. The starting point is research which enforces a balanced-budget rule for social security programs in equilibrium models with labor market frictions. This feature gives rise to countercyclical payroll tax burdens and thereby a significant time-varying, distortionary wedge in the economy. Research conducted in the first funding period resulted in the construction of a dataset covering complete sets of tax brackets and associated marginal rates for social security contributions (SSC) in OECD countries that will be made available to researchers. Empirical findings suggest that SSC rates move countercyclically, while ongoing research investigates the macroeconomic effects in the context of a New Keynesian DSGE model with detailed labor market institutions.The second part will shift focus to similarities and differences of the German labor market at the microeconometric level, compared with that of the periphery countries, and implications for possible labor-market reforms. This focus is inspired by the discussion about the role of German labor market reforms in the recent success of the German labor market. Using micro data, we will estimate wage rigidity in Germany in the period 1993-2010 to assess if the reforms contributed to the success. Application of the same estimation strategy to Greek micro data will be informative about the comparability of the Greek labor market and hence about likely successful reforms. In the final phase of the project, macroeconomic effects of wage-rigidity reducing policies will be studied in a DSGE model of a monetary union.
DFG Programme
Priority Programmes
