1887

OECD Social, Employment and Migration Working Papers

This series is designed to make available to a wider readership selected labour market, social policy and migration studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language - English or French - with a summary in the other.

English, French

Distributional Consequences of Labor Demand Adjustments to a Downturn

A Model-Based Approach with Application to Germany 2008-09

Macro-level changes can have substantial effects on the distribution of resources at the household level. While it is possible to speculate about which groups are likely to be hardest-hit, detailed distributional studies are still largely backward-looking. This paper suggests a straight forward approach to gauge the distributional and scale implications of large output changes at an early stage. We illustrate the method with an evaluation of the impact of the 2008-2009 crisis in Germany. We take as a starting point a very detailed administrative matched employer-employee dataset to estimate labor demand and predict the effects of output shocks at a disaggregated level. The predicted employment effects are then transposed to household-level micro data, in order to analyze the incidence of rising unemployment and reduced working hours on poverty and inequality. We focus on two alternative scenarios of the labor demand adjustment process, one based on reductions in hours (intensive margin) and close to the German experience, and the other assuming extensive margin adjustments that take place through layoffs (close to the US situation). Our results suggest that the distributional and scale consequences are less severe when labor demand reacts along the intensive margin.

English

Keywords: income distribution, crisis, labour demand, tax-benefit system
JEL: D58: Microeconomics / General Equilibrium and Disequilibrium / Computable and Other Applied General Equilibrium Models; J23: Labor and Demographic Economics / Demand and Supply of Labor / Labor Demand; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes; H60: Public Economics / National Budget, Deficit, and Debt / National Budget, Deficit, and Debt: General
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