Social Preferences and Labor Market Policy
AbstractWe find that the main featues of labor policy across OECD countries can be explained by an equilibrium search model with risk neutral agents and a government that chooses policy to maximize a social welfare function. Optimal policy redistributes income from advantaged to disadvantaged workers. A worker can be disadvantaged in one of two possible ways - they may have less ability to aquire and utilize skills in the workplace or they may have less ability to enjoy leaisure (i.e. home production). The government does not directly observe these attributes, but must infer them from labor market outcomes. The optimal policy is a solution to an incentive compatibility problem, because each worker has some influence over their labor market state. The model explains why passive benefits tend to fall and active benefits tend to increase durng the course of unemployment spell. The model also explains why countries that appear to pursue equity spend more on both active and passive labor market programs.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 562.
Date of creation: 03 Dec 2006
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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competitive search; optimal policy;
Other versions of this item:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
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