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Labour market programmes and the equity-efficiency trade-off

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  • Filges, Trine
  • Kennes, John
  • Larsen, Birthe
  • Tranæs, Torben

Abstract

This paper studies optimal labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both efficiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different levels of risk of unemployment. We show that in such an environment, training programmes that are targeted at the disadvantaged workers complement passive transfers (UI benefits), unlike general training subsidies. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a period) – the typical Active Labour Market Programme – creates a favourable trade-off between equity and efficiency and this encourages high spending on training.

Suggested Citation

  • Filges, Trine & Kennes, John & Larsen, Birthe & Tranæs, Torben, 2011. "Labour market programmes and the equity-efficiency trade-off," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 738-753.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:738-753
    DOI: 10.1016/j.jmacro.2011.06.004
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    Cited by:

    1. Trine Filges & Lars Pico Geerdsen & Geir Smedslund & Anne‐Sofie Due Knudsen & Anne‐Marie Klint Jørgensen, 2013. "PROTOCOL: Active Labour Market Programme Participation for Unemployment Insurance Recipients: protocol for a systematic review," Campbell Systematic Reviews, John Wiley & Sons, vol. 9(1), pages 1-50.

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    More about this item

    Keywords

    Unemployment; Efficiency; Training;
    All these keywords.

    JEL classification:

    • H00 - Public Economics - - General - - - General

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