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Labour Market Programmes and the Equity-Efficiency Trade-off

Author

Listed:
  • Filges, Trine

    (Department of Economics, Copenhagen Business School)

  • Kennes, John

    (Department of Economics, Copenhagen Business School)

  • Larsen, Birthe

    (Department of Economics, Copenhagen Business School)

  • Tranæs, Torben

    (Department of Economics, Copenhagen Business School)

Abstract

This paper studies labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both effiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different unemployment risks. We show that in such an environment, training programmes that are targeted to the unemployed complement passive transfers (UI benefits), unlike a general training subsidy. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a while) - the typical Active Labour Market Programme - implies a favorable trade-off between equity and efficiency which encourages high spending on training.

Suggested Citation

  • Filges, Trine & Kennes, John & Larsen, Birthe & Tranæs, Torben, 2006. "Labour Market Programmes and the Equity-Efficiency Trade-off," Working Papers 11-2005, Copenhagen Business School, Department of Economics.
  • Handle: RePEc:hhs:cbsnow:2005_011
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    References listed on IDEAS

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    1. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
    2. Richard Blundell, 2004. "Labour Market Policy and Welfare Reform: Meeting Distribution and Efficiency Objectives," De Economist, Springer, vol. 152(2), pages 233-250, June.
    3. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, July.
    4. Nicola Pavoni & G. L. Violante, 2007. "Optimal Welfare-to-Work Programs," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 283-318.
    5. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
    6. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume,in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
    7. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
    8. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
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    Keywords

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    JEL classification:

    • H00 - Public Economics - - General - - - General

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