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Policy Complementarities: The Case for Fundamental Labor Market Reform

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  • David Coe
  • Dennis Snower

Abstract

The message of this paper can be summarized in two simple points: (i) A wide range of labor market institutions - including unemployment benefits, job security legislation and payroll taxes - have complementary effects on unemployment, (ii) Thus a correspondingly wide range of labor market policies, aimed at reformed these institutions are also complementary. The existence of this network of policy complementarities implies that partial labor market reform - such as implementing job counselling and retraining schemes, while generous unemploument benefits and stringent job security provisions remain in place - is unlikely to achieve significant reductions in unemployment rates. By the same token, active labor market policies are unlikely to be effective in the presence of substantial passive policies. What is required, instead, is a thoroughgoing, many-handed approach, where by a broad range of institutional rigidities are dismantled simultaneously.

Suggested Citation

  • David Coe & Dennis Snower, 1996. "Policy Complementarities: The Case for Fundamental Labor Market Reform," Archive Discussion Papers 9625, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkewp:9625
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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