IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_1807.html
   My bibliography  Save this paper

Pareto-Improving Unemployment Policies

Author

Listed:
  • Jörg Lingens
  • Klaus Wälde

Abstract

We investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of low-wage earners. Lower unemployment replacement rates reduce unemployment, the net wage and unemployment benefits. A lower tax on labour increases net wages and - for certain benefit-systems - unemployment benefits as well. Combining these two policies allows to reduce unemployment in countries with “net-Bismarck” and Beveridge systems without reducing net income of workers or of the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.

Suggested Citation

  • Jörg Lingens & Klaus Wälde, 2006. "Pareto-Improving Unemployment Policies," CESifo Working Paper Series 1807, CESifo.
  • Handle: RePEc:ces:ceswps:_1807
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1807.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kjell Erik Lommerud & Bjørn Sandvik & Odd Rune Straume, 2004. "Good Jobs, Bad Jobs and Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 703-720, December.
    2. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
    3. Gruner, Hans Peter, 2002. " Unemployment and Labor-Market Reform: A Contract Theoretic Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 641-656, December.
    4. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1719-1750, November.
    5. Johnson, Paul & Webb, Steven, 1993. "Explaining the Growth in UK Income Inequality: 1979-1988," Economic Journal, Royal Economic Society, vol. 103(417), pages 429-435, March.
    6. Jörg Lingens & Klaus Wälde, 2009. "Pareto-Improving Unemployment Policies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 220-245, June.
    7. Ann‐Sofie Kolm, 2000. "Labour Taxation in a Unionised Economy with Home Production," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 689-705, December.
    8. Henrik Jacobsen Kleven & Peter Birch Sørensen, 2004. "Labour Tax Reform, the Good Jobs and the Bad Jobs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 45-64, March.
    9. Lawrence M. Kahn, 2000. "Wage Inequality, Collective Bargaining, And Relative Employment From 1985 To 1994: Evidence From Fifteen Oecd Countries," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 564-579, November.
    10. Schnabel, Claus & Wagner, Joachim, 2003. "Determinants of Trade Union Membership in Western Germany: Evidence from Micro Data, 1980-2000," IZA Discussion Papers 708, Institute of Labor Economics (IZA).
    11. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    12. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
    13. Michalopoulos, Charles & Robins, Philip K. & Card, David, 2005. "When financial work incentives pay for themselves: evidence from a randomized social experiment for welfare recipients," Journal of Public Economics, Elsevier, vol. 89(1), pages 5-29, January.
    14. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
    15. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, January.
    16. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
    17. Robert A. Moffitt, 2003. "The Negative Income Tax and the Evolution of U.S. Welfare Policy," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 119-140, Summer.
    18. Bruno Van der Linden, 2004. "Active citizen's income, unconditional income and participation under imperfect competition: a welfare analysis," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 98-117, January.
    19. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    20. Schneider, Hilmar & Zimmermann, Klaus F. & Bonin, Holger & Brenke, Karl & Haisken-DeNew, John P. & Kempe, Wolfram, 2002. "Beschäftigungspotenziale einer dualen Förderstrategie im Niedriglohnbereich," IZA Research Reports 5, Institute of Labor Economics (IZA).
    21. Stephen Nickell, 2004. "Poverty And Worklessness In Britain," Economic Journal, Royal Economic Society, vol. 114(494), pages 1-25, March.
    22. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x.
    23. Knut Røed & Steinar Strøm, 2002. "Progressive Taxes and the Labour Market: Is the Trade–off Between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 77-110, February.
    24. Winfried Koeniger & Marco Leonardi & Luca Nunziata, 2007. "Labor Market Institutions and Wage Inequality," ILR Review, Cornell University, ILR School, vol. 60(3), pages 340-356, April.
    25. Tom Clark & Andrew Leicester, 2004. "Inequality and two decades of British tax and benefit reform," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 129-158, June.
    26. Leo Kaas & Leopold Thadden, 2004. "Budgetary policy and unemployment dynamics in an olg model with collective bargaining," Economic Journal, Royal Economic Society, vol. 114(498), pages 867-889, October.
    27. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
    28. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    29. Atkinson, Anthony B, 2000. " The Welfare State, Budgetary Pressure and Labour Market Shifts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 445-462, June.
    30. Schnabel, Claus, 2002. "Determinants of trade union membership," Discussion Papers 15, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    31. Thorbecke, Erik & Charumilind, Chutatong, 2002. "Economic Inequality and Its Socioeconomic Impact," World Development, Elsevier, vol. 30(9), pages 1477-1495, September.
    32. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
    33. Kiander, Jaakko & Kilponen, Juha & Vilmunen, Jouko, 2004. "Labor taxation, public finance, and wage determination: evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 20(4), pages 983-999, November.
    34. E. Paul Durrenberger, 2005. "Labour," Chapters, in: James G. Carrier (ed.), A Handbook of Economic Anthropology, chapter 8, Edward Elgar Publishing.
    35. Ljungqvist, Lars & Sargent, Thomas J, 2002. "The European Employment Experience," CEPR Discussion Papers 3543, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    2. Laszlo Goerke & Markus Pannenberg & Heinrich Ursprung, 2010. "A positive theory of the earnings relationship of unemployment benefits," Public Choice, Springer, vol. 145(1), pages 137-163, October.
    3. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 545-571, September.
    4. Jörg Lingens & Klaus Wälde, 2009. "Pareto-Improving Unemployment Policies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 220-245, June.
    5. Erkki Koskela & Panu Poutvaara, 2008. "Outsourcing and Labor Taxation in Dual Labor Markets," CESifo Working Paper Series 2333, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van der Linden, 2016. "Beyond the labour income tax wedge: the unemployment-reducing effect of tax progressivity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 454-489, June.
    2. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142, April.
    3. Heshmati Almas & Karlson Nils & Box Marcus, 2013. "Generality, State Neutrality and Unemployment in the OECD," Global Economy Journal, De Gruyter, vol. 13(3), pages 333-358, December.
    4. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    5. Doménech, Rafael & Garcí­a, José Ramón, 2008. "Unemployment, taxation and public expenditure in OECD economies," European Journal of Political Economy, Elsevier, vol. 24(1), pages 202-217, March.
    6. Albert Jan Hummel, 2021. "Unemployment and tax design," Tinbergen Institute Discussion Papers 21-061/VI, Tinbergen Institute.
    7. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
    8. Goerke, Laszlo & Madsen, Jakob B., 2003. "Earnings-related unemployment benefits and unemployment," Economic Systems, Elsevier, vol. 27(1), pages 41-62, March.
    9. Goerke, Laszlo & Madsen, Jakob B., 2003. "Earnings-Related Unemployment Benefits in a Unionised Economy," IZA Discussion Papers 701, Institute of Labor Economics (IZA).
    10. Mathias, HUNGERBUEHLER, 2004. "Tax Progression in Imperfect Labour Markets : A Survey," LIDAM Discussion Papers IRES 2004032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    11. García, José Ramón & Sala, Hector, 2008. "The tax system incidence on unemployment: A country-specific analysis for the OECD economies," Economic Modelling, Elsevier, vol. 25(6), pages 1232-1245, November.
    12. Albert Jan Hummel, 2021. "Unemployment and Tax Design," CESifo Working Paper Series 9177, CESifo.
    13. Feldmann, Horst, 2009. "The unemployment effects of labor regulation around the world," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 76-90, March.
    14. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2011. "Comparing the effectiveness of employment subsidies," Labour Economics, Elsevier, vol. 18(2), pages 168-179, April.
    15. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    16. repec:dgr:rugccs:200409 is not listed on IDEAS
    17. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.
    18. Jan Boone & Peter Fredriksson & Bertil Holmlund & Jan C. van Ours, 2007. "Optimal Unemployment Insurance with Monitoring and Sanctions," Economic Journal, Royal Economic Society, vol. 117(518), pages 399-421, March.
    19. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2013. "Unemployment in an Interdependent World," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 262-301, February.
    20. Girma, Sourafel & Görg, Holger & Strobl, Eric & Walsh, Frank, 2008. "Creating jobs through public subsidies: An empirical analysis," Labour Economics, Elsevier, vol. 15(6), pages 1179-1199, December.
    21. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.

    More about this item

    Keywords

    inequality; unemployment; taxation; policy reform;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1807. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.