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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 13-2006:
Social Preferences and Labor Market Policy

Trine Filges, John Kennes, Birthe Larsen and Torben Tranęs

Abstract: We find that the main featues of labor policy across OECD countries can be explained by a simple general equilibrium search model with risk neutral agents and a government that chooses policy to maximize a social welfare function. In equilibrum, policies are chosen to optimal redistribute income from advantaged to disadvantaged workers. A worker can be disadvantaged in the sense that they may have less ability to aquire and utilize skills in the workplace. The model explains why passive benefits tend to fall and active benefits tend to increase during 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.

Keywords: na; (follow links to similar papers)

JEL-Codes: G10; (follow links to similar papers)

30 pages, January 1, 2006

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