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Social Preferences and Labor Market Policy

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

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.

Suggested Citation

  • Filges, Trine & Kennes, John & Larsen, Birthe & Tranæs, Torben, 2006. "Social Preferences and Labor Market Policy," Working Papers 13-2006, Copenhagen Business School, Department of Economics.
  • Handle: RePEc:hhs:cbsnow:2006_013
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    References listed on IDEAS

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    1. Kiley Michael T., 2003. "How Should Unemployment Benefits Respond to the Business Cycle?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-22, July.
    2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics.
    3. 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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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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