The West European employment problem

The West European Employment Problem. -The most characteristic feature of the unemployment experience in Western Europe is the inability of the unemployment rate to return to pre-shock levels. In addition to rather restrictive demand management at various occasions, the main reasons for this persistence of unemployment are probably the long-term paths of real and relative wages, wide marginal tax wedges, disincentives to hiring and job search and possibly also an erosion of social norms against living off benefits. It is argued that a package of complementary policy reforms is necessary to overcome the unemployment persistence in Western Europe.     

A continuous model of income insurance

In this paper we treat an individual’s health as a continuous variable, in contrast to the traditional literature on income insurance, where it is assumed that the individual is either able or unable to work. A continuous treatment of an individual’s health sheds new light on the role of income insurance and makes it possible to capture a number of real-world phenomena that are not easily captured in the traditional, dichotomous models. In particular, we show that moral hazard is not necessarily outright fraud, but a gradual adjustment of the willingness to work, depending on preferences and the conditions stated in the insurance contract. Further, the model can easily encompass phenomena such as administrative rejection of claims, and it clarifies the conditions for the desirability of insurance in the first place.     

Economic–social interaction in China1

This paper analyzes economic–social interaction in China in connection with the country's change of economic system. I define an economic system in terms of a multi‐dimensional vector of broad institutional characteristics, and I emphasize that important features of the social development are closely related to specific changes in these various dimensions. I classify China's options for future social improvements into three broad categories: (i) policies that improve the stability and distribution of factor income; (ii) government‐created wedges between factor income and disposable income; and (iii) improvements in the quantity, quality and distribution of human services, such as education and healthcare.     

Symmetric and asymmetric persistence of labor market shocks

Within the insider-outsider paradigm, this paper examines persistence of shocks in the labor market. We distinguish “symmetric persistence” where the extent of persistence is independent of the initial direction of the shock, and “asymmetric persistence” where beneficial and adverse shocks of equal magnitude have effects of different size. The paper offers a theoretical rationale for how the symmetry or asymmetry may depend on the extent to which the shock was anticipated in wage setting and then develops a framework in which the possibility of asymmetric persistence can be tested empirically. Using annual UK data, we obtain empirical evidence of significant asymmetry in the response of employment (and wages) to shocks. Small beneficial shocks are reflected entirely in wage increases, although sufficiently large favorable shocks also elicit increases in employment. In contrast, adverse shocks lead to reductions in both wages and employment. Evidence from Japan and West Germany provides some evidence of the presence of asymmetry, although this is less marked than in the United Kingdom. The policy implications are discussed.     

Interpreting income distributions in a welfare state: The case of Sweden

It is shown in this paper that the distribution of purchasing power, and hence probably also ‘economic well-being’, in a Welfare State like Sweden is not tightly connected with the contribution of households in the production system. Moreover, economic inequality is drastically exaggerated when income statistics are not adjusted for differences in working time and in the time-profile of income over life. However, it is also shown that some important inequalities are not removed even by the very ambitious tax and Welfare State system in Sweden, and that some new inequalities are in fact introduced. The paper also tries to highlight the wide wedges which in an ‘advanced’ Welfare State are necessarily driven between factor costs for firms and factor rewards for households. All this holds in particular for annual income.     

Redistribution policy and the expansion of the public sector

During the first part of this century, life-cycle and insurance-type considerations seem to have dominated redistribution policy, in particular when we look at the consequences for the expansion of public spending. By contrast, during recent decades, ‘fragmented horizontal redistributions’ between various minority groups have probably been the most important mechanisms. The self-interest of different groups of the electorate seems to have provided the most powerful motive behind these various policies, although welfare altruism and what in this paper are called considerations of ‘consequential externalities’ have probably been important motives behind redistribution in favor of the poor.     

Sickness Absence and Local Benefit Cultures

In many countries, sickness absence financed by generous insurance benefits is an important concern in the policy debate. There are strong variations in absence behavior among local geographical areas. Such variations are difficult to explain in terms of observable socioeconomic factors. In this paper, we investigate whether such variations are related to group effects in the form of social interaction among individuals within neighborhoods. Well‐known methodological problems arise when trying to answer this question. A special feature of our efforts to deal with these problems is that we adopt several alternative approaches to identify group effects. Our study is based on a rich set of Swedish panel data, and we find indications of group effects in each of our approaches.