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Labour market programmes and the equity-efficiency trade-off

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  • Filges, Trine
  • Kennes, John
  • Larsen, Birthe
  • Tranæs, Torben

Abstract

This paper studies optimal labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both efficiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different levels of risk of unemployment. We show that in such an environment, training programmes that are targeted at the disadvantaged workers complement passive transfers (UI benefits), unlike general training subsidies. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a period) – the typical Active Labour Market Programme – creates a favourable trade-off between equity and efficiency and this encourages high spending on training.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 4 ()
Pages: 738-753

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:738-753

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Unemployment; Efficiency; Training;

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  1. John P. Martin, 1998. "What Works Among Active Labour Market Policies: Evidence From OECD Countries' Experiences," OECD Labour Market and Social Policy Occasional Papers 35, OECD Publishing.
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series, Uppsala University, Department of Economics 2003:10, Uppsala University, Department of Economics.
  3. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(5), pages 996-1025, October.
  4. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  5. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  6. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  7. Richard Blundell, 2004. "Labour Market Policy and Welfare Reform: Meeting Distribution and Efficiency Objectives," De Economist, Springer, vol. 152(2), pages 233-250, 06.
  8. Pavoni, Nicola & Violante, Giovanni L, 2006. "Optimal Welfare-to-Work Programs," CEPR Discussion Papers 5937, C.E.P.R. Discussion Papers.
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