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Squandering European Labor: Social Safety Nets in Times of Economic Turbulence

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  • Ljungqvist, Lars

    ()
    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    This paper reviews the argument that high long-term unemployment in Europe is caused by generous social safety nets in times of economic turbulence. We report on the empirical evidence of a more turbulent economic environment and present the theoretical arguments that establish a link between turbulence and high unemployment. We conclude that a cure to the European unemployment problem must entail a reform of the unemployment insurance system so that benefits decline over the unemployment spell. If the social consensus in Europe makes it difficult to implement declining benefits, we suggest that a complementary way of providing incentives for the unemployed would be to reduce their leisure by imposing work requirements.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 321.

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    Length: 30 pages
    Date of creation: 31 May 1999
    Date of revision:
    Publication status: Published in Scottish Journal of Political Economy, 1999, pages 367-388.
    Handle: RePEc:hhs:hastef:0321

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    Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
    Phone: +46-(0)8-736 90 00
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    Web page: http://www.hhs.se/
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    Keywords: European unemployment; economic turbulence; unemployment insurance;

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    Cited by:
    1. Lars Ljungqvist & Thomas J. Sargent, 2010. "How Sweden’s Unemployment Became More Like Europe’s," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 189-223 National Bureau of Economic Research, Inc.
    2. Peichl, Andreas & Siegloch, Sebastian, 2010. "Accounting for Labor Demand Effects in Structural Labor Supply Models," IZA Discussion Papers 5350, Institute for the Study of Labor (IZA).

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