ABSTRACT
The bulk of the firm’s obligatory social welfare contributions are comprised of three broad items, which are, ranked in descending order of importance (see Table A2.8), old age benefit, sickness benefit and unemployment insurance. Changes in per-worker contributions take the form of changes in payroll tax rates and/or changes in the contribution ceilings. Despite the quantitative importance of these items within the firm’s total labour bill, a relatively small part of the social welfare literature has been devoted to analysing their effects on the firm’s employment behaviour. Rather, it has concentrated on the benefit or supply side of the labour market, examining the effects of changes in benefits on such variables as intensity of search activity, labour force participation, temporary layoffs and work effort. The effects of contribution changes are of interest not only because they too have employment implications but also because benefit and contribution changes often occur contemporaneously, especially in schemes with self-financing objectives. The question of particular interest that then arises is whether the employment effects of contribution changes complement or counteract those of benefit changes. In illustrating some of the complications involved in incorporating the contribution side, we first concentrate on unemployment insurance in section 8.1. Emphasis is given to differences between the US contribution system and those generally observed elsewhere. The discussion is then widened in Section 8.2 to include other obligatory contributions. Section 8.3 assesses the implications of allowing for the employment effects of changes in social welfare contributions for related supplyside studies into the determinants of the rate of unemployment. Finally, some brief general conclusions are given in section 8.4.
