P8

Project Leader:
Prof. Dr. Laszlo Goerke, University of Trier

Projectmember:
Dr. Florian Baumann, ZEW Mannheim

Labour markets cannot only be made more flexible by the abolition of regulations, but also through alterations in the scope of such regulations and their enforcement. From an economic standpoint, more comprehensive, less strict regulations can exhibit the same amount of flexibility as strict regulations offering exceptions.

In this research project, social security contributions as well as employment protection regulations, especially in the form of severance payments, will be investigated. By using economic models the consequences for the flexibility of the labour market when such regulations can be circumvented are analyzed.

With reference to the evasion of social security contributions, the effects on the supply and demand side respectively will be analyzed and compared with the results of tax evasion studies that have occurred up until the present day. Later on, with the aid of numerous labour market models, the effects on employment resulting from the evasion will be determined. The aim of this is to break down the total effect of the evasion in order to identify different channels of effect, allowing policy recommendations to be made.

In the second focus of the research, the optimal design of severance payments in the event of non-evadable regulations will be investigated and compared with an analysis into the scope of severance payments in private contracts without governmental intervention. Finally, circumvention of severance payments by firms is allowed for.

We intend to investigate the labour market effects when evasion is accounted for and by which means a given level of flexibility is optimally achieved.