Optimum income taxation and layoff taxes

This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed).     

Incentives to Work: Replacement Ratios and the Cost of Job Loss among Indigenous Australians

The relationship between the social welfare system and employment incentives has received considerable attention in the literature. This paper uses data from the National Aboriginal and Torres Strait Islander Survey to consider these issues for indigenous Australians. Two measures are calculated: the replacement ratio which measures the expected gains from employment for those not in work; and the cost of job loss which measures the expected costsof becoming unemployed for those in employment. The estimates presented here show that the replacement ratio is higher for females than males and for those in a married or de facto relationship compared with single people. About 5 per cent of single males and females could expect a higher income from social security than from non-Community Development Employment Projects (CDEP)scheme employment. Among those with dependent partners 24 per cent of males and 40 per cent of females looking for work could expect a higher income from social security than from non-CDEP employment. The estimates of the cost of job loss, which include the effects of the duration of unemployment and the replacementratio, show a high cost for some indigenous Australians because of their expected longer duration of unemployment.     

Unemployed immigrants and voter sentiment in the welfare state

Adverse voter sentiment can arise when immigrants are unemployed and receive tax-financed income transfers. The explanation for unemployment however determines the consequences for the local population, and an efficiency-wage explanation for unemployment is consistent with mutual benefit to national workers and employers from the presence of unemployed immigrants receiving tax-financed income transfers. The mutual benefit requires credible labor-market disciplining through job offers to immigrants and willingness of immigrants to accept job offers. Acceptance of job offers results in displacement in employment of national workers by immigrants, which can compromise the effectiveness of efficiency wages as a counter to anti-immigrant voter sentiment in the welfare state.     

Reassessing the ins and outs of unemployment

This paper uses readily accessible aggregate time series to measure the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job, the ins and outs of unemployment. Since 1948, the job finding probability has accounted for three-quarters of the fluctuations in the unemployment rate in the United States and the employment exit probability for one-quarter. Fluctuations in the employment exit probability are quantitatively irrelevant during the last two decades. Using the underlying microeconomic data, the paper shows that these results are not due to compositional changes in the pool of searching workers, nor are they due to movements of workers in and out of the labor force. These results contradict the conventional wisdom that has guided the development of macroeconomic models of the labor market since 1990.     

Unemployment Durations in West Germany Before and After the Reform of the Unemployment Compensation System during the 1980s

Abstract. This paper analyzes empirically the distribution of unemployment durations in West Germany during the 1980s and 1990s. It therefore covers periods before and after the changes during the mid‐1980s in the maximum entitlement periods for unemployment benefits for older unemployed. The analysis is based on the IAB employment subsample containing administrative data for about 500,000 individuals. Since these data only partly reveal the unemployment duration in an economic sense, we use a narrow and a wide proxy for unemployment. Our empirical analysis finds significant changes in the distribution of non‐employment durations for older unemployed. At the same time, the distribution of unemployment durations between jobs remained unchanged after the reforms. Our findings clearly show that many firms and workers used the more beneficial laws as a part of early retirement packages. Surprisingly, for those workers who found and accepted a new job, we do not observe a prolongation of their search periods to a sizeable extent.     

HOW TO VALUE THE POORER PROSPECTS OF YOUTH IN THE EARLY 1990s?

Young workers in the 1990s can expect greater economic insecurity, as well as lower average earnings, compared to older workers, or compared to the youth of previous decades. The cost of greater insecurity depends upon an individual's probability of unemployment, marginal utility of income gains/losses and the extent to which individuals can smooth consumption over time by borrowing and drawing down assets. Since unemployment insurance cutbacks and higher unemployment have increased the risk exposure of youth, changes in the expected value of their income may understate utility losses as measured by the change in certainty equivalent income.
This paper uses a behavioural microsimulation model to compare the impacts of 1971 and 1994 unemployment insurance legislation and unemployment rates in Canada. It calculates both the expected value of income changes and, using a Stone-Geary utility function, the change in inequality of well-being (as measured by certainty equivalent income) for youth and for prime age workers. Both calculations reveal that youth were disproportionately affected by Canada's changing labour market environment. Very few youth have enough assets to finance consumption during spells of unemployment.     

Estimating the relationship between labour market tightness,unemployment insurance benefits and union election activity

Using detailed data from the US National Labor Relations Board, we find labour market tightness, defined as the ratio of job vacancies to the number of unemployed, has a positive relationship with the likelihood of voting in favour of union representation. Specifically, a 1 SD increase in labour market tightness increases Vote Share in favour and the likelihood of union certification by roughly 1.5% and 3%, respectively. We also find that length of unemployment insurance benefits has a positive relationship with Vote Share in favour. Taken together, these results suggest that workers are more comfortable engaging in pro-union election behaviours when exogenous conditions, like labour market tightness and unemployment insurance benefit duration, shift in a way that more favourably insulates them from unemployment and income risk.     

Does the public employment service affect search effort and outcomes?

In this paper, we examine the disincentive effects of the public employment service on the search effort of unemployed workers and on their exit rate from unemployment. For that purpose, we specify a structural search model with fixed and variable costs of search in which unemployed workers select their optimal search intensity given the exogenous arrival rate of job contacts coming from the public employment agency. Because the theoretical effect of an increase in this exogenous job contact arrival rate on the structural exit rate from unemployment is ambiguous, we estimate this model using individual unemployment duration data. Our results show that the exit rate from unemployment increases with the arrival rate of job contacts obtained by the public employment service, especially for low-educated and low-skilled workers. They also show that the search effort is more costly for low-educated women and low-skilled adult unemployed workers. This last result suggests that a public employment agency that matches searchers and employers is beneficial, in the sense that it saves searchers in terms of search costs they would otherwise bear.     

The Czech Labour Market in Transition: Evidence from a Micro Study

In contrast to the other countries in eastern and central Europe, unemployment has so far increased only modestly in the Czech Republic. Results are reported from a panel survey of a sample of initially unemployed workers in the industrial centre of Ostrava, interviewed in three rounds during 1993. Results are reported regarding the wage in the former job, the reservation wage, the wage in a new job and the minimum acceptable wage in another job for those who have become employed during the panel study. Finally, results from estimating a hazard function for leaving unemployment are reported.     

How Changes in Financial Incentives Affect the Duration of Unemployment

This paper studies how changes in the two key parameters of unemployment insurance—the benefit replacement rate (RR) and the potential benefit duration (PBD)—affect the duration of unemployment. To identify such an effect we exploit a policy change introduced in 1989 by the Austrian government, which affected various unemployed workers differently: a first group experienced an increase in RR; a second group experienced an extension of PBD; a third group experienced both a higher RR and a longer PBD; and a fourth group experienced no change in the policy parameters. We find that unemployed workers react to the disincentives by an increase in unemployment duration, and our empirical results are consistent with the predictions of job search theory. We use our parameter estimates to split up the total costs to unemployment insurance funds into costs due to changes in the unemployment insurance system with unchanged behaviour and costs due to behavioural responses of unemployed workers. Our results indicate that costs due to behavioural responses are substantial.     

失业保险金与再就业行为

现有的失业理论及实证研究都认为失业保险金的提高会增加失业者的失业持续时间。在本文中,我们试图从失业者面临工作机会的工资分布结构出发,对失业保险金与失业者再就业工资分布的关系进行描述。通过对传统工作搜寻理论模型的扩展,我们证明失业保险金对失业持续时间的影响存在三种不同的传导路径,同时我们得到两个推论:失业保险金的增加一方面将提高失业者接受"高"工资工作机会的概率;但另一方面对失业者从事"低"工资工作机会的影响是不确定的。如果将正式工作视为"高"工资的工作机会,而将非正式工作视为"低"工资的工作机会;则基于微观层面的数据所进行的实证研究结果验证了我们的推论。     

The effectiveness of Public Employment Service workers in the Netherlands

In this paper, we measure the effectiveness of the Dutch Public Employment Service (PES) workers for various performance indicators. Using unique administrative monthly data from local PES offices during 2004, we exploit the fact that the number of PES workers per job seeker varies substantially between offices and over time. We find additional PES workers to significantly increase outflow rates for short term unemployed (i.e. the first half year of unemployment), whereas no effects are obtained for the outflow rates of long term unemployed. PES workers are also found to reduce the inflow into the schemes and to increase the number of vacancies that are registered by offices. Although the effectiveness of PES workers is limited, we conclude that changes in the number of PES workers per client are cost-effective—that is, the extra costs are compensated for by the resulting reduction in benefit expenses.     

Consumption and the Within-household Income Distribution: Outcomes from an Australian "Natural Experiment"

Does the within-household distribution of income influence householdconsumption patterns? In one attempt to answer this question,Lundberg, Pollak and Wales (1997) exploited the ‘naturalexperiment’ of a change in family benefits in the UK.They found that the within-household income distribution didhave a significant impact on expenditure. This paper exploitsa similar natural experiment in Australia. During the 1990s,unemployment benefits for unemployed married couples changedfrom being paid almost entirely to husbands, to being paid primarilyto wives. Using household expenditure data it is found that,although the changes in the within-household income distributionwere large, the changes in expenditure patterns were small andnot in the expected direction. The data do not, therefore, providesupport for the hypothesis that women's control over householdexpenditure was increased. The paper concludes with a discussionof the possible reasons for this. (JEL J10, J12, I38)     

A Behavioral Model of Unemployment,Sociotropic Concerns,and the Political Economy of Trade Policy

We present a behavioral model in which agents are concerned about the scarring effects from unemployment for themselves and others and explore the manner in which unemployment matters for trade policy. We derive three policy implications: the government has an incentive to increase employment in sectors characterized by “good jobs,” where the good job/bad job characterization depends on an industry's job creation and destruction rates; the government has an incentive to pursue this policy in a gradual fashion by channeling new and unemployed workers into the appropriate sector; and opposition to trade liberalization can be reduced by welfare state policies.     

Search costs and efficiency: Do unemployed workers search enough?

Many labor market policies affect the marginal benefits and costs of job search. The impact and desirability of such policies depend on the distribution of search costs. In this paper, we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the Dutch labor market. In our model, the wage distribution, job search intensities, and firm entry are simultaneously determined in market equilibrium. Given the distribution of search intensities (which we directly observe), we calibrate the search cost distribution and the flow value of non-market time; these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities. From a social point of view, some unemployed workers search too little due to a hold-up problem, while other unemployed workers search too much due to coordination frictions and rent-seeking behavior. Our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare-improving.     

Sectoral differences in the use of information technology and matching efficiency in the US labour market

The present study examines how the heterogeneity of use of information technology in production affects the probability that an unemployed worker will be matched with a vacancy. Using US time series from 1967 to 2007, I construct measures of dispersion of the stocks of software and hardware per worker across 13 industries. The measures exhibit three waves whose timing roughly corresponds to the diffusion of mainframe computers in the 1960s and 1970s, personal computers in the 1980s and the Internet in the late 1990s. After controlling for other influences, I find that the probability of transitioning from unemployment to employment responds negatively to an increase in either measure. The results imply that by enhancing technical heterogeneity, the diffusion of a new technology may suppress the job finding rate.     

Immigration and the natural rate of unemployment in Australia

This paper presents an indirect test of the proposition that a decrease in the rate of immigration into Australia during the early 1960s lowered the efficiency with which unemployed persons and unfilled job vacancies were matched, and increased labor turnover, thereby increasing the “natural” rate of unemployment. A theoretical model of employment growth is used to derive an expression for the steady-state relationship between unemployment and vacancies. Estimates of the model are obtained for the period 1955i–1973ii during which distinctly different immigration levels occurred. The empirical results are not consistent with the contention that a decrease in immigration caused the relationship between unemployment and job vacancies in Australia to shift outward. Therefore, the evidence suggests that the unemployment rate associated with a given level of labor demand was not significantly increased by the reduction in immigration to Australia.     

Sectoral shifts and unemployment persistence

This paper deals with possible explanations of unemployment persistence within a sectoral approach to the Austrian labour market. First the concept of unemployment persistence is specified in terms of the time series properties of the unemployment rate. Sectoral job gains and job losses form the labour market flows in this approach. The standard matching model is replaced then by a model of the competition between the unemployed and new entrants in the labour market for new jobs as an ‘adding up’ demand system of the AIDS type. The estimations of different system specifications indicate, that the sectoral structure of job gains plays a role in the competition mechanism between unemployed workers and new entrants.     

Cash Transfers to the Poor and the Labor Market: An Equilibrium Analysis

This paper studies the effects of cash transfers to the poor on the labor market. This is investigated in a matching model with endogenous labor market participation and job destruction. Depending on their productivity, workers might want to stay in the job, become unemployed, or leave the labor market; in addition, workers out of the labor force might decide to search for a job. Cash transfers are introduced to all agents with income below a given level. Two qualitative results are found: (i) The size of cash transfers has a negative effect on the employment rate, but an ambiguous effect on the unemployment rate; and (ii) the coverage of this welfare program has a positive effect on the employment rate, and an ambiguous effect on the unemployment rate. The numerical simulations also show that: (i) if the government target is to reduce inequality and poverty, the more efficient policy is to increase the level of benefits instead of increasing the eligibility of the program; (ii) compared with a welfare program that condition eligibility to labor market participation, the “unconditional” cash transfer program has a stronger impact on inequality and poverty, but with a reduction in labor market participation and output.     

Political aspects of household finance: debt,wage bargaining,and macroeconomic (in)stability

The recent literature has shown that income inequality is one of the main causes of borrowing and debt accumulation by working households. This article explores the possibility that household indebtedness is an important cause of rising income inequality. If workers experience rising debt burdens, their cost of job loss may rise if they need labor-market income to continue borrowing and servicing existing debt. This, in turn, will reduce their bargaining power and increase income inequality, inducing workers to borrow more to maintain consumption standards, and so creating a vicious circle of rising inequality, job insecurity, and indebtedness. We believe that these dynamics may have contributed to observed simultaneous increases in income inequality and household debt prior to the recent financial crisis. To explore the two-way interaction between inequality and debt, we develop an employment rent framework that explicitly considers the impact of workers’ indebtedness on their perceived cost of job loss. This is embedded in a neo-Kaleckian macro model in which inequality spurs debt accumulation that contributes to household consumption spending and hence demand formation. Our analysis suggests that (a) workers’ borrowing behavior plays a crucial role in understanding the character of demand and growth regimes; (b) debt and workers’ borrowing behavior play an important role in the labor market by influencing workers’ bargaining power; and (c) through such channels, workers’ borrowing behavior can be a decisive factor in the determination of macroeconomic (in)stability.