Discussion Paper Details

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Title: Good Jobs, Bad Jobs and Redistribution

Author(s): Kjell Erik Lommerud, B. Sandvik and Odd Rune Straume

Publication Date: November 2003

Keyword(s): optimal taxation, redistribution, rent sharing and segmented labour markets

Programme Area(s): Public Economics

Abstract: We analyse the question of optimal taxation in a dual economy, when the policy-maker is concerned about the distribution of labour income. Income inequality is caused by the presence of sunk capital investments, which creates a ?good jobs? sector due to the capture of quasi-rents by trade unions. With strong unions and high planner preference for income equality the optimal policy is a combination of investment subsidies and progressive income taxation. If unions are weaker, the policy-maker may instead choose to tax investment.

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Bibliographic Reference

Lommerud, K, Sandvik, B and Straume, O. 2003. 'Good Jobs, Bad Jobs and Redistribution'. London, Centre for Economic Policy Research.