This paper investigates the effect of entrepreneurs’ personal income tax situations on their
use of labor. We analyze the income tax returns of a large number of sole proprietors before and
after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax
rates associated with that law affected their decisions to hire labor and the size of their wage
bills. We find that individual income taxes exert a statistically and quantitatively significant
influence on the probability that an entrepreneur hires workers. A 6 percentage point reduction
in the marginal tax rate of an entrepreneur in the 39.6 percent bracket induces an approximately
1 1.8 percent increase in the probability that he hires labor. Further, conditional on hiring
employees, taxes also influence the total wage payments to those workers. The elasticity of the
median wage bill with respect to the marginal tax rate is about 0.397.
labor
Job turnover is a major sources of labor turnover, and perhaps a contributing factor to
unemployment. Job turnover in Israeli manufacturing, in spite of the rigidity of the labor
market, does not differ from job turnovers in Europe and North America. New jobs in
expanding and new firms increase employment by 10 percent, and contracting and
closing firms destroy about 8 percent of all jobs annually.
Job turnover can be explained in the framework of a dynamic model of labor
demand. The major driving force behind the change in employment are changes in
productivity. The negative correlation between the demand for labor and changes in
wages is less pronounced.
Adjustment costs result in inbuilt inertia in job turnover. The inertia effect is,
however, asymmetric. Declines in employment have a much stronger effect than emp-
loyment increases.
This paper estimates the role of insider power in wage determination in a
unionized industry, examining the direction and magnitude of biases which may
arise through failure to control for variation in both hours of work and the
composition of the labor force and through failure to control for the endogeneity
of measured profits. Furthermore, by examining the extent to which rent-sharing
is related to exogenous demand shocks rather than to potentially endogenous
productivity, we provide a test of the bargaining and ‘pure’ efficiency wage
models, finding that the majority of the insider weighting can be explained by
the bargaining model. Our data set covers earnings and profitability in the New
South Wales coal industry from 1952 to 1987. We estimate a partial adjustment
model and test for co-integration of the time series in order to establish
whether or not a long-run stable equilibrium exists.