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Demand- And Supply-Side Policies And Unemployment: Policy Implications Of The Insider-Outside Approach

Author

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  • LINDBECK, A.
  • SNOWER, D.J.

Abstract

The paper analyzes a variety of government policies that can stimulate employment when unemployment is generated through the conflicting of interest between insiders and outsiders. It also provides guidelines for identifying policies that may be ineffective. We show how supply side policies can stimulate employment by raising worker productivity or reducing labor costs. Our analysis indicates that when wages and prices are flexible, product demand policies have no significant effect on employment unless these policies stimulate labor productivity, the entry of firms, capital utilization or investment.
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Suggested Citation

  • Lindbeck, A. & Snower, D.J., 1989. "Demand- And Supply-Side Policies And Unemployment: Policy Implications Of The Insider-Outside Approach," Papers 439, Stockholm - International Economic Studies.
  • Handle: RePEc:fth:stocin:439
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    References listed on IDEAS

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    1. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
    2. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November.
    3. Staiger, Robert W. & Tabellini, Guido, 1989. "Rules and discretion in trade policy," European Economic Review, Elsevier, vol. 33(6), pages 1265-1277, July.
    4. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
    7. Hellmuth Milde & John G. Riley, 1988. "Signaling in Credit Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 101-129.
    8. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
    9. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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    Cited by:

    1. Rebecca M. Blank & Richard B. Freeman, 1994. "Evaluating the Connection between Social Protection and Economic Flexibility," NBER Chapters,in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 21-42 National Bureau of Economic Research, Inc.
    2. Fung, K.C. & C. Lin, Chelsea, 2005. "European Economic Integration and the Effectiveness of Employment Policies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 419-438.
    3. Aguiar, Alvaro & Ribeiro, Ana Paula, 2009. "Monetary policy and the transition costs of a labor market reform," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 547-560, December.
    4. Tony Syme, 2000. "Public Policy and Unemployment in Interwar France: An Empirical Approach," Economics Series Working Papers 55, University of Oxford, Department of Economics.
    5. Rebecca M. Blank, 1997. "No Easy Answers: Comparative Labor Market Problems in the United States versus Europe," Economics Working Paper Archive wp_188, Levy Economics Institute.
    6. Muysken Joan & Zwick Thomas, 1996. "A note on incentive wages with human capital formation," Research Memorandum 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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    Keywords

    unemployment ; wages ; costs;

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