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The Role of Workfare in Striking a Balance between Incentives and Insurance in the Labour Market

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  • Torben M. Andersen
  • Michael Svarer

Abstract

Workfare policies are often introduced in labour market policies to improve the trade-off between incentives and insurance as an alternative to benefit reductions. Most of the debate on such policies has focussed on the direct effect of those participating in the scheme, and in particular the possible locking-in effect reducing job search. In a general equilibrium search framework, we show that the effects of workfare policies critically depend on the response of those not in the programme when they take into account that workfare is a condition for remaining eligible for unemployment benefits. This implies that unemployed not yet in workfare may search more for regular jobs, and employed may accept lower wages since the outside option becomes less attractive. Introduction of workfare policies into an unemployment insurance scheme is shown to contribute to a reduction in both open and total unemployment. It is also shown that the direct search effects of workfare policies are a poor indicator of the overall effect workfare policies have on labour market policies.
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  • Torben M. Andersen & Michael Svarer, 2014. "The Role of Workfare in Striking a Balance between Incentives and Insurance in the Labour Market," Economica, London School of Economics and Political Science, vol. 81(321), pages 86-116, January.
  • Handle: RePEc:bla:econom:v:81:y:2014:i:321:p:86-116
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    Cited by:

    1. Caroline Hall & Kaisa Kotakorpi & Linus Liljeberg & Jukka Pirttilä, 2022. "Screening through Activation? Differential Effects of a Youth Activation Program," Journal of Human Resources, University of Wisconsin Press, vol. 57(3), pages 1033-1077.
    2. Brown, Alessio J. G. & Snower, Dennis J., 2009. "Incentives and complementarities of flexicurity," Kiel Working Papers 1526, Kiel Institute for the World Economy (IfW Kiel).
    3. Claus Thustrup Kreiner & Michael Svarer, 2022. "Danish Flexicurity: Rights and Duties," Journal of Economic Perspectives, American Economic Association, vol. 36(4), pages 81-102, Fall.
    4. Alessio Brown & Johannes Koettl, 2015. "Active labor market programs - employment gain or fiscal drain?," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-36, December.
    5. Jochen Michaelis & Alexander Spermann, 2009. "Geringqualifizierte Arbeit, Marktlöhne und Sozialpolitik: Konzepte für Deutschland," MAGKS Papers on Economics 200920, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Torben M. Andersen, 2009. "Taxes and employment - is there a Scandinavia puzzle ?," European Economy - Economic Papers 2008 - 2015 359, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Torben M. Andersen, 2011. "Social policies and activation in the Scandinavian welfare model: the case of Denmark," Economics Working Papers 2011-10, Department of Economics and Business Economics, Aarhus University.
    8. Torben M. Andersen, 2015. "A flexicurity labor market during recession," IZA World of Labor, Institute of Labor Economics (IZA), pages 173-173, July.
    9. Torben Andersen & Michael Svarer, 2008. "Flexicurity in Denmark," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(04), pages 15-20, December.
    10. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2017. "The subjective well-being of workfare participants: insights from a day reconstruction survey," Applied Economics, Taylor & Francis Journals, vol. 49(13), pages 1311-1325, March.
    11. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    12. Holzner, Christian & Meier, Volker & Werding, Martin, 2010. "Workfare, monitoring, and efficiency wages," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 157-168, March.
    13. Torben M. Andersen, 2016. "Automatic stabilizers—the intersection of labour market and fiscal policies," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-18, December.
    14. Eichhorst, Werner & Konle-Seidl, Regina & Koslowski, Alison & Marx, Paul, 2010. "Quantity over Quality? A European Comparison of the Changing Nature of Transitions between Non-Employment and Employment," IZA Discussion Papers 5285, Institute of Labor Economics (IZA).
    15. Torben M. Andersen & Michael Svarer, 2007. "Flexicurity: Labour Market Performance in Denmark," CESifo Economic Studies, CESifo, vol. 53(3), pages 389-429, September.
    16. Claus Thustrup Kreiner & Michael Svarer, 2022. "Danish Flexicurity: Rights and Duties," CEBI working paper series 22-16, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    17. Davoine, Thomas, 2015. "A theoretical rationale for flexicurity policies based on education," Economics Series 311, Institute for Advanced Studies.
    18. Torben Andersen, 2010. "Why do Scandinavians Work?," CESifo Working Paper Series 3068, CESifo.
    19. Christian Keuschnigg & Thomas Davoine, 2010. "Flexicurity and Job Reallocation," University of St. Gallen Department of Economics working paper series 2010 2010-11, Department of Economics, University of St. Gallen.
    20. Andersen, Torben M., 2012. "Migration, Redistribution and the Universal Welfare Model," IZA Discussion Papers 6665, Institute of Labor Economics (IZA).
    21. Germana Bottone, 2020. "The Effect of Globalisation on Labour Market Institutions in Europe," Working Papers 0052, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    22. Lukas Fervers, 2016. "Fast track to the labour market or highway to hell? The effect of activation policies on quantity and quality of labour market integration," IAW Discussion Papers 125, Institut für Angewandte Wirtschaftsforschung (IAW).
    23. repec:ces:ifodic:v:6:y:2008:i:4:p:14567193 is not listed on IDEAS
    24. Thomas Davoine & Christian Keuschnigg, 2015. "Flexicurity, Taxes and Job Reallocation," CESifo Working Paper Series 5302, CESifo.
    25. Torben Andersen & Michael Svarer, 2008. "Flexicurity in Denmark," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(4), pages 15-20, December.

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