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Labour Market Policy and the Equity-Efficiency Trade-Off

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Author Info
Trine Filges () (Danish National Institute of Social Research)
John Kennes () (University of Copenhagen)
Birthe Larsen () (Copenhagen Business School)
Torben Tranæs () (Rockwool Foundation Research Unit, CESifo and IZA)

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Abstract

This paper studies labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity. Furthermore, the seeks both efficiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different unemployment risks. We show that in such an environment, training programmes targeted to the disadvantaged workers complement passive transfers (UI benefits), unlike a general training subsidy. Combining passive subsidies with a training subsidy conditioned on individual unemployment duration - the typical Active Labour Market Programme - implies a favorable trade-off between equity and efficiency which encourages relative high spending on training.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2824.

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Length: 29 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2824

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Related research
Keywords: labour market; active and passive policy; equity-efficiency trade-off;

Other versions of this item:

Find related papers by JEL classification:
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  2. Richard Blundell, 2004. "Labour Market Policy and Welfare Reform: Meeting Distribution and Efficiency Objectives," De Economist, Springer, vol. 152(2), pages 233-250, 06. [Downloadable!]
  3. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  4. 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. [Downloadable!] (restricted)
    Other versions:
  5. Nicola Pavoni & Giovanni L. Violante, 2005. "Optimal welfare-to-work programs," Discussion Paper / Institute for Empirical Macroeconomics 143, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  6. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    Other versions:
  7. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia. [Downloadable!]
    Other versions:
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