High and persistent unemployment is still one of the most urgent problems in Europe. The third and last workshop of the CESifo Venice Summer Institute was aimed at stimulating the scientific debate about the causes of unemployment and possible ways out of the unemployment crisis. Thirty European labour economists met in Venice for two days to discuss solutions for bringing full employment back to Europe.
The keynote speaker was Jonas Agell, who gave a talk on the determinants of labour market institutions. He argued that the predominant explanation of existing labour market rigidities, which is based on rent sharing, is incomplete. Trade unions, job protection and egalitarian pay structures may have as much to do with social insurance as with rent sharing and vested interests. In labour markets with flexible wages, workers face high income risks which cannot be insured by private markets. Labour market institutions which create some type of wage rigidities may provide such an insurance, although this insurance is imperfect. Historical examples of how labour market institutions developed in Massachusetts and Sweden support this view. Taking into account the inherent insurance function of labour market rigidities, the evaluation of labour market reforms in Europe changes substantially. The benefits of reducing labour market distortions have to be compared with the costs of reduced insurance coverage of income risks. Agell argued that, for instance, it is unclear whether globalisation will actually force countries to make their labour markets more flexible. Pressure to reduce the cost of labour market imperfections will rise but so will the demand for income insurance. Providing cross-country comparison, Agell showed that there is no evidence so far that increasing openness threatens existing labour market institutions. The development of the so-called New Economy creates new job opportunities but also increases risk. This is another reason to preserve labour market institutions which provide insurance.
The sessions of contributed papers were opened by Wiemer Salverda, who discussed the Dutch miracle. He argued that although Dutch employment rose substantially in the last two decades, employment per capita remained constant. The fall in the unemployment rate is therefore mainly due to an increased share of part-time jobs. Wiemer Salverda concluded that the encouragement of part-time work may be an important ingredient of labour market policies in countries with growing service sectors, where this type of employment is particularly appropriate.
One particular focus of the papers presented in the workshop was the relation between capital accumulation and labour market performance. Rainer Fehn analysed the long-run consequences of institutional shocks on capital formation and employment. He argued that the increase in labour market rigidities in Europe reduced investment in the long term and thus led to persistently higher unemployment rates in the 80s and 90s despite a falling labour share. Thomas Moutos emphasised the importance of capital accumulation of countries relative to that of other countries. Rune Stenbacka in turn pointed to the importance of the capital structure for wage setting and employment. In economies with unionised labour markets, a higher degree of debt financing may induce wage moderation.
The question of whether the preference of firms for higher workers who are still employed rather than unemployed was investigated by Nils Gottfries. He showed that the stronger this preference is, the higher and more persistent the overall unemployment rate will be. According to this analysis, it is particularly important for labour market policies to fight long term unemployment.
The topics covered by the other papers presented represented the wide variety of topics that labour economists are currently interested in. For example, Henrik Jordahl analysed the interaction between central bank policy and labour market reform. He derived a u-shaped relationship between central bank conservatism and labour market reform and presented empirical evidence for this relationship. Ruud de Mooij considered tax policy in a model of search with training. Mikka Leppämäki discussed how the degree of entrepreuneurship is affected by unionisation. Erik Hernaes presented the results of an empirical analysis of how a recent change in the Norwegian early retirement regulations affected family labour supply. Michael Funke discussed how working time and labour taxation affect employment.
Finally, research using the method of experimental economics was presented by Arno Riedl who reported about an experiment on the economic effects of financing unemployment benefits via a wage tax. Due to sales risks for producers both output and input levels are lower than standard general equilibrium models suggest and vicious cycles may emerge when increasing unemployment benefit expenditures are financed by increasing payroll taxes.
Keynote Speech:
JONAS AGELL The determinants of labour market institutions: rent sharing versus social insurance. See abstract.
The following papers were presented:
Click here to see the detailed programme for the workshop.
Back to Venice Summer Institute 2000 Main Page
RSS