Assar Lindbeck

Balanced-budget redistribution as the outcome of political competition

This paper models balanced-budget redistribution between socio-economic groups as the outcome of electoral competition between two political parties. Equilibrium is unique in the present model, and a sufficient condition for existence is given, requiring that there be enough ‘stochastic heterogeneity’ with respect to party preferences in the electorate. The validity of Hotellings ‘principle of minimum differentiation’, and of ‘Directors Law’, are examined under alternative hypotheses concerning administrative costs of redistributions, and voters possibilities both of abstaining from voting and of becoming campaign activists for one of the parties. The policy strategy of expected-plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality. Incomes are fixed and known, so lump-sum taxation is feasible. However, constraints on tax/transfer differentiation between individuals are permitted in the analysis.

Social Norms and Economic Incentives in the Welfare State

This paper analyzes the interplay between social norms and economic incentives in the context of work decisions in the modem welfare state. We assume that to live off ones own work is a social norm, and that the larger the population share adhering to this norm, the more intensely it is felt by the individual. Individuals face two choices: one economic, whether to work or live off public transfers; and one political, how large the transfer should be. The size of the transfer and the intensity of the social norm are determined endogenously in equilibrium.

Multi-Task Learning and the Reorganization of Work. From Tayloristic to Holistic Organization

This article analyzes an important aspect of the contemporary reorganization of work within firms: the shift from “Tayloristic” organization (characterized by specialization by tasks) to “holistic” organization (featuring job rotation, integration of tasks, and learning across tasks). We examine four driving forces behind this restructuring process: advances in production technologies promoting technological task complementarities, advances in information technologies promoting informational task complementarities, changes in worker preferences in favor of versatile work, and advances in human capital that make workers more versatile. Our analysis also helps explain the recent widening of wage differentials and disparities in job opportunities within narrowly defined groups.

The Gains from Pension Reform

This paper presents a unified analytical framework for the analysis of social security reform. It discusses reform along two dimensions: Pay-As-You-Go versus fully funded on the one hand, and actuarial versus non-actuarial on the other. Making the system more actuarial entails a trade-off between less distorted work incentives and intra-generational redistribution. Increasing the degree of funding entails a trade-off between more distorted work incentives, and redistribution in favor of future generations. If a PAYGO system already has strong actuarial elements, the additional welfare gain from making it fully funded derives from the possibility of portfolio diversification.

A model of political equilibrium in a representative democracy

Abstract This paper studies political equilibrium in a two-party representative democracy in which the political parties are policy motivated and voters trade off their policy preferences against their ‘party identity’. It is shown that the parties will in general adopt differing policy positions in equilibrium, and that, under certain qualifications, the winning policy will lie between the more popular partys preferred policy and a certain utilitarian optimum. The winning policy will be closer to this utilitarian optimum the less biased the electorate is in terms of ‘party identification’.

Union activity, unemployment persistence and wage-employment ratchets

The idea underlying this paper is quite simple. Consider a labor market containing firm-specific unions facing labor demand shocks which are transient (in the sense that the distribution of shocks has a constant mean and finite variance). After an adverse shock, firms reduce the size of their workforces (through dismissals or failure to replace retiring employees) and unemployment rises. The remaining incumbent employees are now in a better position than previously: since they are smaller in number but face the same distribution of shocks, their chances of retaining their jobs have risen. Now, acting through their unions, they respond to this enhanced job security by driving up their wages. However, the unemployed workers cannot underbid on account of labor turnover costs. At the new higher wages, the firms will employ fewer workers (for any given new labor demand shock) than they would otherwise have done. In this way, unions help perpetuate the initial rise in unemployment. We will explore how this unemployment persistence is related to the degree of union power and how unions may generate wage-unemployment ratchets. A number of recent studies’ have presented various analytical frameworks

Efficiency Wages Versus Insiders and Outsiders

This paper compares two theories of involuntary unemployment: the efficiency-wage theory and the insider-outsider theory. We indicate that one of the central problems in providing microfoundations for the existence of involuntary unemployment is to explain why there is no underbidding, and we compare the two theories in this contex.

Social Norms and Welfare State Dynamics

The paper analyses the interaction between economic incentives and work norms in the context of social insurance. If the work norm is endogenous in the sense that it is weaker when the population share of beneficiaries is higher, then voters will choose less generous benefits than otherwise. We also discuss welfare-state dynamics when there is a time lag in the adjustment of the norm in response to changes in this population share, and show how a temporary shift in the unemployment rate may cause persistence in the number of beneficiaries.

The Interaction of Monetary Policy and Wages

This paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions. Government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory. Specifically, it is shown (a) how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy; (b) how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility-maximizing reactions of unions; and (c) how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously.

Towards Full Employment and Price Stability.

Yet another paper on full employment and price stability would seem to be a leading candidate for prizes in the Departments of Futility and Temerity. For over a decade now we have had a persisting problem of inflation, and for most ofthat period the unemployment rate has also been high. The probability that after a decade any new approaches or new insights can be developed would seem to be low. If Mark Twain were writing today he would probably cite inflation and unemployment, rather than weather, as something much discussed and about which obviously little is done.