---------------- Forwarded message -------------------- From: Portes, Jonathan ([EMAIL PROTECTED]) Date: Thu, 28 May 1998 10:02:51 -0400 There seems to be some confusion here. The work spreading tax doesn't increase "employment", in the sense of hours worked; but it does potentially reduce unemployment. Switching from a flat rate tax on the purchase of any commodity - including labour - to a tax that only applies after a threshold amount of that commodity will clearly make it more attractive to purchase that commodity in smaller "lumps". In the labour context, that means more people working fewer hours each. Gavin Cameron writes > -----Original Message----- > > Secondly, the following quote from David Chapman's posting supports my > argument that the WSJ is an example of the 'lump of labour fallacy': > > >Employers will thus have an incentive to spread the available work, > so as > >to receive more of these subsidies, employing more workers each > working > >fewer hours, to do a given amount of work. > It is true that it is not necessarily the case that the "given amount of work" will in fact remain constant; it could increase or decrease, with resulting second order effects on unemployment. This is presumably what Gavin means by the lump of labour fallacy in this context. But David Chapman's basic point is clearly correct. If it is currently economic to employ three workers for 40 hours a week each, then a work-spreading tax - by, for example, exempting the first 10 hours wages per employee from labour taxation - would make it relatively more attractive for employers to hire 4 workers at 30 hours a week (ignoring transitional costs,etc). Unemployment would fall. This is not the lump-of-labour fallacy; indeed, it is the basic neoclassical analysis of tax incidence, and does not rely on any assumptions about labour market structures. There might, under certain circumstances, be efficiency losses, but this would depend on other factors. On a secondary point, while Gavin is correct that in theory switching from a payroll to other taxes won't reduce unemployment, this is only true if the payroll tax is a fixed percentage of income. If payroll (or other labour) taxes are "regressive" - that is, they are a greater proportion of income for the lower paid or for those who work fewer hours, as is generally the case - then switching from a payroll tax to a flat rate income or consumption tax will in general reduce unemployment, for the same reason given above. ------------------------------------------------------------- Posted to uk-policy, a service of Nexus. http://www.netnexus.org/ Hosting and email provided by new media consultants On-Line Publishing Regards, Tom Walker ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ #408 1035 Pacific St. Vancouver, B.C. V6E 4G7 [EMAIL PROTECTED] (604) 669-3286 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The TimeWork Web: http://www.vcn.bc.ca/timework/
