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Interactions between Employment and Training Policies

  • Frank Oskamp
  • Dennis J. Snower

This paper examines the interactions between employment and training policies. Their effectiveness in stimulating income and employment may be interdependent for various important reasons. For example, the more employment policies stimulate the employment rate, the greater the length of time over which workers use the human capital generated by training policies. Moreover, the greater the government expenditures on employment and training policies, the higher the taxes required to finance these expenditures and these higher taxes reduce aggregate income. On account of such effects, employment and training policies may be complementary or substitutable with respect to aggregate income. To analyze these interactions, we construct a simple, dynamic model of hiring decisions, derived from microfoundations. The model is calibrated with German data. The simulation shows that there are signifcant interactions between both policies. In the absence of government-budget-constraint effects, there are complementarities, but the government budget constraint introduces substitutabilities. The analysis provides a methodology for examining policy interactions which may be useful well beyond the bounds of employment and training policies.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1389.

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Length: 35 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:kie:kieliw:1389
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