۱٫ Introduction

۲٫ Literature review

۳٫ Methodology and data

۴٫ Results and discussions

۵٫ Conclusions

References

Our paperwork seeks to analyze the difference between the labor cost and the net wage (representing labor tax wedge) in correlation with the unemployment rate and employment rate, as the idea that a high labor cost produces distortions in the labor market is widely accepted. With this purpose in mind, we used the hierarchical cluster analysis on a sample of 41 countries (being about OECD and EU countries). Following this analysis, we concluded that the countries can be divided in two big categories based on the unemployment rate, employment rate and the difference between the labor cost and the net wage (labor tax wedge). For countries characterized by a large gap between labor costs and net wage and which also present a high level of unemployment there is a need to adopt fiscal measures for reducing labor cost.

Introduction

There are many opinions arguing that the high costs of work are responsible for high unemployment rate in several countries. It is about the following studies: Trpeski & Tashevska 2012, Urban 2009, Azemar & Desbordes 2009, Morawski & Myck 2007, European Commission 2014. Consequently, in order to diminish unemployment on the long run, many countries started to adopt some measures for reducing labor cost. But the financial crisis from recent years and the large fiscal deficits due to it make very difficult to solve these issues. Tax wedge has long been identified as one of the significant factors behind the rapid increase of unemployment levels in Europe since the 1960s and also one of the major reasons for which the decrease of unemployment has proved so difficult (Morawski & Myck, 2007, p. 2). Tax wedge measures the burden of tax and social security contributions relative to labor cost (Wages and labor costs, 2015, p. 1). In fact, this tax wedge is calculated by adding all the social contributions paid by the employer and employee, with the income tax, then this amount is divided by the total cost of labor of the employer. Therefore, we can say that the tax wedge represents the difference between the labor costs and the net salary.