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Targets, Models and Policies: A Quantitative Approach to Raising the EU Employment Rate

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  • Alho, Kari E.O.

Abstract

The EU 2020 process has the key headline target of raising the average employment rate in the EU to 75 from the present 69 per cent. In this paper, we first derive a new result for optimal policymaking under uncertainty. It consists of two components : one of a unilateral policy reaction under certainty, which is then multiplied by a scale factor, reflecting the uncertainty over the impact coefficient concerned with respect to those of the other policy variables. Based on this finding, we use a large multi-country labour market model, estimated in Bassanini and Duval (2006), to derive and discuss the various employment policy interventions and relevant labour market indicators to be monitored in the EUs Joint Assessment Framework (JAF). As the derived optimal labour market policy entails streamlining welfare benefits and may thus jeopardise the other target of inclusion in the EU 2020 process, we then discuss and evaluate how the distributional consequences of such a policy can be mitigated through transfer and tax changes. It turns out that compensation of the losers is possible in such a way that all will gain, and employment, GDP and aggregate labour supply will all rise. Tiivistelmä. EU :n 2020-prosessilla on yhtenä päätavoitteena nostaa keskimääräinen työllisyysaste 75 prosenttiin nykyisestä 69 prosentista. Tässä tutkimuksessa johdamme ensin uuden tuloksen koskien optimaalista politiikkaa, joka muodostuu kahdesta komponentista : ensinnäkin yksittäisestä politiikasta varmuuden vallitessa, joka toiseksi kerrotaan skaalatekijällä, joka on yhden ja nollan välillä ja joka kuvaa kyseisen politiikan vaikutuskertoimen epävarmuutta suhteessa muiden politiikkamuuttujien kertoimien epävarmuuteen. Tähän tulokseen perustuen hyödynnämme laajaa useita maita kattavaa työmarkkinamallia, jonka ovat rakentaneet Bassanini ja Duval (2006) ja jonka avulla ratkaistaan optimaalinen työllisyyspolitiikka. Koska johdettu politiikka merkitsee mm. hyvinvointietuuksien karsintaa, tarkastelemme, kuinka tällaisen politiikan tulonjakovaikutuksia voidaan lieventää verotuksen ja tulonsiirtojen välityksellä. Saamme tuloksen, jonka mukaan häviäjien kompensointi on siten mahdollista, että työllisyys, BKT ja työn tarjonta nousevat verrattuna tilanteeseen ennen politiikkaa.

Suggested Citation

  • Alho, Kari E.O., 2012. "Targets, Models and Policies: A Quantitative Approach to Raising the EU Employment Rate," Discussion Papers 1282, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:dpaper:1282
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    2. Alho, Kari, 2002. "The Equilibrium Rate of Unemployment and Policies to Lower It: The Case of Finland," Discussion Papers 839, The Research Institute of the Finnish Economy.
    3. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
    4. Jens Matthias Arnold & Bert Brys & Christopher Heady & Åsa Johansson & Cyrille Schwellnus & Laura Vartia, 2011. "Tax Policy for Economic Recovery and Growth," Economic Journal, Royal Economic Society, vol. 121(550), pages 59-80, February.
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    More about this item

    Keywords

    employment rate; optimal policy; compensation; tax policy;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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