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Social Preferences and Labor Market Policy

Author

Listed:
  • Trine Filges
  • John Kennes

    () (Institute of Economics University of Copenhagen)

  • Torban Tranaes

Abstract

We find that the main featues of labor policy across OECD countries can be explained by an equilibrium search model with risk neutral agents and a government that chooses policy to maximize a social welfare function. Optimal policy redistributes income from advantaged to disadvantaged workers. A worker can be disadvantaged in one of two possible ways - they may have less ability to aquire and utilize skills in the workplace or they may have less ability to enjoy leaisure (i.e. home production). The government does not directly observe these attributes, but must infer them from labor market outcomes. The optimal policy is a solution to an incentive compatibility problem, because each worker has some influence over their labor market state. The model explains why passive benefits tend to fall and active benefits tend to increase durng 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

  • Trine Filges & John Kennes & Torban Tranaes, 2006. "Social Preferences and Labor Market Policy," 2006 Meeting Papers 562, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:562
    as

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    References listed on IDEAS

    as
    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. 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.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    competitive search; optimal policy;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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