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Flexicurity and Job Reallocation

  • Christian Keuschnigg

    ()

  • Thomas Davoine

    ()

This paper develops a general equilibrium model with safe and risky jobs where unemployment is concentrated in a highly productive but volatile sector. Frictional unemployment arises in the process of job creation, firing and retraining for alternative employment. The paper derives an optimal welfare policy which combines the design of the tax schedule with three pillars of the `flexicurity' model. The optimal policy is characterized by (i) a progressive wage tax schedule; (ii) a wage subsidy to re-employed workers; (iii) unemployment insurance benefits; (iv) job protection to contain firing; and (v) active labor market policy to facilitate labor reallocation.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2010/DP-1011-Ke.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-11.

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Length: 42 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:usg:dp2010:2010-11
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  1. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  2. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  3. Dennis J. Snower & Alessio J. G. Brown & Christian Merkl, 2009. "Globalization and the Welfare State: A Review of Hans-Werner Sinn's Can Germany Be Saved?," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 136-58, March.
  4. Tito Boeri, 2004. "The Effects of Employment Protection: Learning from Variable Enforcement," 2004 Meeting Papers 445a, Society for Economic Dynamics.
  5. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  6. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, 04.
  7. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, 04.
  8. Blanchard, Olivier J & Tirole, Jean, 2007. "The Joint Design of Unemployment Insurance and Employment Protection. A First Pass," CEPR Discussion Papers 6127, C.E.P.R. Discussion Papers.
  9. Torben Andersen & Michael Svarer, 2007. "Flexicurity – Labour Market Performance in Denmark," CESifo Working Paper Series 2108, CESifo Group Munich.
  10. Alessio J. G. Brown & Dennis Snower, 2009. "Incentives and Complementarities of Flexicurity," Kiel Working Papers 1526, Kiel Institute for the World Economy.
  11. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2008. "Business Volatility, Job Destruction, and Unemployment," NBER Working Papers 14300, National Bureau of Economic Research, Inc.
  12. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  13. Claus Thustrup Kreiner & Torben Tranæs, 2003. "Optimal Workfare with Voluntary and Involuntary Unemployment," EPRU Working Paper Series 03-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2004.
  14. Luca Nunziata, 2008. "European Employment and the Flexicurity Option," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 6(4), pages 21-28, December.
  15. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  16. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  17. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare reform in European countries: a micro-simulation analysis," EUROMOD Working Papers EM1/04, EUROMOD at the Institute for Social and Economic Research.
  18. Lars Ljungqvist & Thomas J. Sargent, 1996. "The European Unemployment Dilemma," EUI-RSCAS Working Papers 36, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  19. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  20. Cahuc, Pierre & Zylberberg, Andre, 2005. "Optimum Income Taxation and Layoff Taxes," IZA Discussion Papers 1678, Institute for the Study of Labor (IZA).
  21. Peter Fredriksson & Bertil Holmlund, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," CESifo Working Paper Series 922, CESifo Group Munich.
  22. Konrad, Kai A., 2001. "Privacy and time-consistent optimal labor income taxation," Journal of Public Economics, Elsevier, vol. 79(3), pages 503-519, March.
  23. Pavoni, Nicola & Violante, Giovanni L, 2006. "Optimal Welfare-to-Work Programs," CEPR Discussion Papers 5937, C.E.P.R. Discussion Papers.
  24. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  25. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  26. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
  27. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January.
  28. Besley, Timothy & Coate, Stephen, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 187-221, April.
  29. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  30. repec:hal:journl:halshs-00255794 is not listed on IDEAS
  31. Kluve, Jochen, 2006. "The Effectiveness of European Active Labor Market Policy," RWI Discussion Papers 37, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).
  32. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
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