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Incentives and Complementarities of Flexicurity

  • Alessio J. G. Brown
  • Dennis Snower

This paper analyses how and to which degree the Danish flexicurity concept and its various elements achieve the renowned Danish miracle by evaluating their unemployment and inequality effects and their complementarities. We develop a microfounded model of searching workers and firms, calibrate it to Germany and perform the policy experiment of implementing the full Danish flexicurity set of policies (low employment protection, high unemployment benefits and workfare). Our results show that implementing the Danish flexicurity concept in Germany would reduce unemployment and earnings inequality substantially. Furthermore our analysis illustrates that the Danish flexicurity policies have some apparent complementarities in Germany - the reduction of unemployment effect is nearly 40% greater when the policies are implemented in conjunction than in isolation

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1526.

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Length: 25 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:kie:kieliw:1526
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  3. Algan, Yann & Cahuc, Pierre, 2006. "Civic Attitudes and the Design of Labor Market Institutions: Which Countries Can Implement the Danish Flexicurity Model?," IZA Discussion Papers 1928, Institute for the Study of Labor (IZA).
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  8. Fredriksson, Peter & Holmlund, Bertil, 2003. "Optimal Unemployment Insurance Design:Time Limits, Monitoring, or Workfare?," Working Paper Series 2003:17, Uppsala University, Department of Economics.
  9. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May.
  10. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
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  12. David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
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  17. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  18. Jian-Ping Zhou, 2007. "Danish for All? Balancing Flexibility with Security; The Flexicurity Model," IMF Working Papers 07/36, International Monetary Fund.
  19. van der Wiel, Karen, 2009. "Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages," IZA Discussion Papers 4465, Institute for the Study of Labor (IZA).
  20. Riphahn, Regina T. & Thalmaier, Anja & Zimmermann, Klaus F., 1999. "Report No. 2: Schaffung von Arbeitsplätzen für Geringqualifizierte," IZA Research Reports 2, Institute for the Study of Labor (IZA).
  21. Torben M. Andersen & Michael Svarer, 2008. "The role of workfare in striking a balance between incentives and insurance in the labour market," Economics Working Papers 2008-05, School of Economics and Management, University of Aarhus.
  22. Messina, Julián & Vallanti, Giovanna, 2006. "Job flow dynamics and firing restrictions: evidence from Europe," Working Paper Series 0602, European Central Bank.
  23. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  24. Wilthagen, Ton, 1998. "Flexicurity: A new paradigm for labour market policy reform?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 98-202, Social Science Research Center Berlin (WZB).
  25. Richard B. Freeman & Ronald Schettkat, 2005. "Marketization of household production and the EU–US gap in work," Economic Policy, CEPR;CES;MSH, vol. 20(41), pages 6-50, 01.
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  27. Michael Rosholm & Michael Svarer, 2008. "The Threat Effect of Active Labour Market Programmes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 385-401, 06.
  28. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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