Social Econ Blog

...It is one thing to say that labor market institutions matter, and another to know exactly which ones and how. Humility is needed here... Nevertheless, even if one cannot pretend to have much confidence about the optimal overall architecture, much has been learned... We know much more about the incentive aspects of unemployment insurance on search intensity and unemployment duration... We know more about the effects of decreasing social contributions on low wages ... We know more about the effects of employment protection, ... From both the macro evidence and this body of micro–economic work, a large consensus—right or wrong—has emerged:

• It holds that modern economies need to constantly reallocate resources, including labor, from old to new products, from bad to good firms.
• At the same time, workers value security and insurance against major adverse professional events, job loss in particular. While there is a trade-off between efficiency and insurance, the experience of the successful European countries suggests it need not be very steep.
• What is important in essence is to protect workers, not jobs.
• This means providing unemployment insurance, generous in level, but conditional on the willingness of the unemployed to train for and accept jobs if available.
• This means employment protection, but in the form of financial costs to firms to make them internalize the social costs of unemployment, including unemployment insurance, rather than through a complex administrative and judicial process.
• This means dealing with the need to decrease the cost of low skilled labor through lower social contributions paid by firms at the low wage end, and the need to make work attractive to low skill workers through a negative income tax rather than a minimum wage.

This consensus underlies most recent reforms or reform proposals ... These measures are probably all desirable...

// posted by BW @ 3:16 PM