An O ( n log n ) algorithm for the two-machine ow shop problem with controllable machine speeds

Paper presented at the AEA-Conference in Göteborg, Sweden, 9-11 May 1996 In this paper we discuss the influence of tax shifting on wages and employment. The paper is related to earlier research in this field, both for the Netherlands and for other European welfare states. Our approach differs since we pay explicit attention to the well-known theoretical result that it does not matter which side of the market is taxed (Dalton''''s Law). We will analyse the mechanisms behind tax shifting. Further we want to analyse whether a shift from employers'''' to employees'''' burden has an influence on wages and employment. The paper discusses the influence of taxes on wages and employment in various bargaining settings: the perfect competition model, right-to-manage models (including that of bilateral monopoly) and efficiency wage models are analysed. We conclude that the results depend on the framework that is used in the description of wage setting behaviour. The theorem that it is irrelevant which side of the market is taxed, does not hold for right-to-manage and efficiency wage models. In estimations for the Netherlands, the elasticity of wage costs with respect to employers'''' taxes is usually found to lie around 0.9, whereas the elasticity with respect to employees'''' taxes usually is found to lie around 0.4. This apparent violation of Dalton''''s Law has never been explained before. However, it can be explained from our analysis. Moreover, we show the importance of this result for the impact of a recent tax reform in the Netherlands on wages.