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Social Preferences and Labor Market Policy

  • 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)

We find that the main featues of labor policy across OECD countries can be explained by a simple general equilibrium search model with risk neutral agents and a government that chooses policy to maximize a social welfare function. In equilibrum, policies are chosen to optimal redistribute income from advantaged to disadvantaged workers. A worker can be disadvantaged in the sense that they may have less ability to aquire and utilize skills in the workplace. The model explains why passive benefits tend to fall and active benefits tend to increase during the course of unemployment spell. The model also explains why countries that appear to pursue equity spend more on both active and passive labor market programs.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7648
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Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 13-2006.

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Length: 30 pages
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:hhs:cbsnow:2006_013
Contact details of provider: Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
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  1. Peter Fredriksson & Bertil Holmlund, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," CESifo Working Paper Series 922, CESifo Group Munich.
  2. Julien, B. & Kennes, J. & King, I., 1998. "Bidding for Labour," Discussion Papers dp98-03, Department of Economics, Simon Fraser University.
  3. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  4. Nicola Pavoni & Giovanni L. Violante, 2005. "Optimal welfare-to-work programs," Discussion Paper / Institute for Empirical Macroeconomics 143, Federal Reserve Bank of Minneapolis.
  5. Michael Kiley, 2002. "How Should Unemployment Benefits Respond to the Business Cycle?," Computing in Economics and Finance 2002 167, Society for Computational Economics.
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