Seminar（Dept. of Trade Economics）

Theme：Uncovering the Elasticity of Substitution Between Skilled and Unskilled Labor: Bunching Estimates from China

Speaker：Jianguo Wang (Assistant Professor of RMBS)

Time：2022-06-08 16:00

Address：Online Meeting

Language：Chinese/English

Abstract：

We study a “kinked” policy in China that sets a tax deduction limit proportional to firm-level average wage. Quasi-experimental variation and administrative data show a significant bunching at the deduction limit or “kink”. A stylized model shows that firms reduce their average wage by: (i) decreasing the ratio of skilled to unskilled labor; and (ii) inflating the number of workers. Using the bunching method reveals the elasticity of substitution between skilled and unskilled labor, which is a key parameter used in production functions with efficiency units of labor.