Working Paper 12-07 - Wage and age related employers’ SSC cuts and wage subsidies in the 2007 vintage of HERMES

The distinction between the young and the elderly within low and high wage earning employment in HERMES, the FPB's medium-term macroeconomic model, enables the assessment of both age and wage related labour cost reducing policies. The age structure of salaried employment in each branch of activity is embedded in a three-stage mechanism. First, aggregate demand and the relative cost of labour to capital determine salaried employment. Next, relative wages allocate employment among three major labour categories: low-paid jobs, high-paid jobs and special-employment programmes. Finally, within each labour category relative wages allocate employment between the young (aged less than fifty) and the elderly (aged fifty or more).