Does Automatic Wage Indexation Destroy Jobs? A Machine Learning Approach.

ABSTRACT: This paper analyzes the impact of automatic wage indexation on employment. To boost competitiveness and increase employment, Belgium suspended its automatic wage indexation system in 2015. This resulted in a 2% fall in real wages for all workers. In the absence of a suitable control group, we use machine learning for the counterfactual analysis. We artificially construct the control group for a difference-in-difference analysis based on the pre-treatment evolution of treated firms. We find a positive impact on employment of 1.2%, which corresponds to a labor demand elasticity of - 0.6. This effect is more pronounced for manufacturing firms, where the elasticity reaches - 1. These results show that a suspension of the automatic wage indexation mechanism can be effective in preserving employ

SUBMITTER: Bijnens G 

PROVIDER: S-EPMC9932419 | biostudies-literature | 2023

REPOSITORIES: biostudies-literature