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What if supply-side policies are not enough? The perverse interaction of flexibility and austerity

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  • Dosi, G.
  • Pereira, M.C.
  • Roventini, A.
  • Virgillito, M.E.

Abstract

In this work we develop a set of labour market and fiscal policy experiments upon the labour- and credit- augmented “Schumpeter meeting Keynes” agent-based model. The labour market is declined under two institutional variants, the “Fordist” and the “Competitive” set-ups meant to capture the historical transition from the post-WWII toward the post Thatcher-Reagan period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management, passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of the public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the negative interaction between flexibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers’ skill deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to sustain long-run growth.

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  • Dosi, G. & Pereira, M.C. & Roventini, A. & Virgillito, M.E., 2019. "What if supply-side policies are not enough? The perverse interaction of flexibility and austerity," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 360-388.
  • Handle: RePEc:eee:jeborg:v:162:y:2019:i:c:p:360-388
    DOI: 10.1016/j.jebo.2018.11.026
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    Cited by:

    1. Giovanni Dosi & Marcelo C. Pereira & Andrea Roventini & Maria Enrica Virgillito, 2018. "The labour-augmented K+S model: a laboratory for the analysis of institutional and policy regimes," LEM Papers Series 2018/24, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Giovanni Dosi & Dario Guarascio & Andrea Ricci & Maria Enrica Virgillito, 2018. "Neodualism in the Italian business firms: training, organizational capabilities and productivity distributions," LEM Papers Series 2018/34, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

    More about this item

    Keywords

    Industrial-relation regimes; Flexibility; Active labour market policies; Austerity; Agent-based models;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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