EMPLOYMENT: EFFECTS ON EMPLOYMENT OF A REDUCTION IN NON-WAGE LABOUR COSTS.

Entitled "Employment an the Reduction in Non-Wage Labour Costs", the study provides an overview of the policies carried out by the EU Member States, and attempts to assess the effects of a reduction in wage costs on the creation of jobs. At the outset, the report states that high labour taxes on low wages lead to high rtes of unemployment or low-skilled, low-paid workers, and an increase in black market activities. However, it goes on to point out that any significant, across the board reduction in labour taxes would require either an strong reduction in social benefits, which is politically complex, or high budgetary costs, which would jeopardise budgetary consolidation. Rather, it adds, the reduction in non-wage labour costs in a number of Member States would have to be offset by spending cuts or by increases in other taxes, namely indirect taxes, which could have offsetting inflationary effects.Taxation and other charges levied on labour.Since 1994/95, the reduction of taxation on labour has been part of the European Union's strategy to raise employment. In this context, special emphasis has been put on non-wage labour costs of unskilled labour. In line with previous recommendations, the European Commission's draft 1999 Broad Economic Policy Guidelines urge the EU Member States to reduce the overall tax burden, and especially the tax wedge on the low-paid through reduced spending or shifts of taxes to environmental, energy or consumption bases. In order to increase employment, the social partners at EU level (employers, trade unions, and enterprises with public participation) are also urged to commit themselves to actions aimed at improving the conditions for job creation.With an average rate of 43% of Gross Domestic Product, the tax burden in the European Union is 13% higher than in the United States. In most EU Member States, the tax burden exceeds 40%, and only in Ireland is its level comparable to the United States. Both the effective tax rate on labour and the labour tax wedge have declined in the European Union by...