Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model
The recent Western European policy debate on unemployment has emphasized the benefits of active labor market programs. The authors analyze the effects on wage pressure and equilibrium employment in a union wage-setting framework. Programs are wage-reducing to the extent that they help maintain effective labor-force participation but they may also weaken insider incentives for wage restraint as the disutility of layoffs becomes smaller. Targeting the long-term unemployed is crucial for the success of active labor market policy since the welfare effects on the laid-off then are more heavily discounted and employment opportunities are redistributed from insiders to outsiders. Copyright 1995 by Royal Economic Society.
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Volume (Year): 105 (1995)
Issue (Month): 430 (May)
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