Working Paper: CEPR ID: DP1585
Authors: David T. Coe; Dennis J. Snower
Abstract: The paper analyses complementarities among a variety of labour market policies. It shows: (a) that a wide range of labour market institutions (e.g. unemployment benefits, job security legislation and payroll taxes) have complementary effects on unemployment; and thus (b) that policies aimed at reforming these institutions are also complementary. These policy complementarities imply that partial labour market reform (directed at one institution, while leaving the other institutions in place) is unlikely to achieve significant reductions in unemployment. Rather, labour market reform becomes particularly effective only once a broad range of institutional rigidities are dismantled simultaneously and the distributional objectives of the previous policies are pursued through more efficient means.
Keywords: policy complementarities; labour market institutions; unemployment; unemployment benefits; job security legislation; payroll taxes; welfare state entitlements; minimum wages; skill acquisition; wage bargaining; job search; labour mobility; labour market policies
JEL Codes: E61; H25; J22; J23; J31; J32; J38; J41; J63; J64; J65; J66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment benefits (J65) | reduced job search efforts (J68) |
| reduced job search efforts (J68) | increased unemployment (J65) |
| job security legislation (J65) | reduced job creation (J68) |
| reduced job creation (J68) | increased unemployment (J65) |
| individual reforms (I28) | overall unemployment (J64) |
| unemployment benefits + job security legislation (J65) | increased unemployment (J65) |