Introduction and summary

In many European OECD countries unemployment remains high, and many commentators worry that wages are too rigid. Widespread concern exists that mobility between jobs and between regions is too low, and that a compressed distribution of net-of-tax pay discourages education and skill formation. At the low end of the labor market, it is feared that the interaction of high taxes and generous social benefits discourages labor supply and labor force participation. In many countries, there is also a concern that an increasing share of the workforce responds to high tax wedges by working in the underground economy, or by engaging in do-it-yourself work in the household sector. The studies in this book are devoted to the analysis of how tax policy, and welfare state incentives more broadly, affects the performance of the labor market. The eight chapters cover both theoretical and empirical approaches, include broad overviews as well as in-depth analysis of specific policies, address normative as well as positive issues, and offer examples of both aggregate and microeconomic analysis. It is our hope that both the policy analyst and the academic theorist will find it worthwhile to read the book. In the following, we offer a brief overview of the contributions included in this volume.