Torben M. Andersen

The Role of Workfare in Striking a Balance between Incentives and Insurance in the Labour Market

Workfare policies are often introduced in labour market policies to improve the trade-off between incentives and insurance as an alternative to benefit reductions. Most of the debate on such policies has focussed on the direct effect of those participating in the scheme, and in particular the possible locking-in effect reducing job search. In a general equilibrium search framework, we show that the effects of workfare policies critically depend on the response of those not in the programme when they take into account that workfare is a condition for remaining eligible for unemployment benefits. This implies that unemployed not yet in workfare may search more for regular jobs, and employed may accept lower wages since the outside option becomes less attractive. Introduction of workfare policies into an unemployment insurance scheme is shown to contribute to a reduction in both open and total unemployment. It is also shown that the direct search effects of workfare policies are a poor indicator of the overall effect workfare policies have on labour market policies.

Persistency in Sticky Price Models

Nominal rigidities imply that monetary neutrality is broken, but can they also account for persistent effects of nominal shocks? One possible propagation mechanism may arise from the fact that nominal price and wage decisions are not coordinated in a decentralized economy, but made by numerous agents acting in an uncoordinated way based on private information. Models with staggered price or wage setting captures neatly the basic implications of non-synchronised decision making. However, recent theoretical work has questioned whether staggering can account for quantitatively important propagation of shocks over time. This paper provides an introduction and overview of the recent literature, and it is concluded that staggering may be a quantitative important propagation mechanism.

Globalisation and the Welfare State

Increased international integration is a continuing trend causing structural changes which may evolve slowly but may, in turn, have significant effects on economic performance. This process has been initiated by a set of factors including technological improvements that lower information and transportation costs, policy changes including reduction of tariff and non-tariff barriers embodied in GATT and WTO agreements, regional trade arrangements like NAFTA, EU and ASEAN, policy shifts in developing countries from import substitution towards export-promoting policies as well as a general shift towards more market-oriented policies.

Coordination of Fiscal and Monetary Policy Under Different Institutional Arrangements

The paper analyses the problem of coordinating fiscal and monetary policies within an explicit game theoretic model of the interaction between different policy institutions. Specifically, the question is considered under (i) different institutional arrangements, (ii) different kinds of reaction of the two authorities, and (iii) different macroeconomic frameworks. The implications for inflation and output as well as the gains from cooperative policy decisions are considered.

Shocks and the Viability of a Fixed Exchange Rate Commitment

The incentive to renege on a commitment to a fixed exchange rate is shown to be state contingent. A fixed exchange rate policy is not viable under “unusual” circumstances, and the incentive to violate the commitment is larger in the case of contractionary shocks than in the case of expansionary shocks. The possibility that the exchange rate regime is changed in “unusual” circumstances has significant effects also under “normal” circumstances, implying systematic devaluation expectations, excessive real wages and (ex post) real rates of interest, lower output and loss of reserves, which in turn reduces the incentive to initiate a fixed exchange rate policy. Moreover, policyshifts may be contagious among countries.

Exchange rate variability and wage formation in open economies

Abstract Exchange rate variability is shown to influence wage formation in open economies with strong unions. Increased exchange rate variability may thus increase real- and product wages and lower employment. Hence, a stable and predictable exchange rate policy may have some gain.

Unemployment and fiscal policy in an economic and monetary union

Abstract We consider the need and room for demand management policies as a way to control unemployment in an Economic and Monetary Union. The set up is a general equilibrium model with imperfectly competitive product and labour markets. Balanced budget demand management policies are shown to affect employment, but they involve a beggar-thyneighbour element since gains in employment are matched by employment losses in other countries in the Union. Uncoordinated polices are too expansionary, and optimal policies require constraints on the size of the public sector in the participating countries.

Credibility of policy announcements: The output and inflation costs of disinflationary policies

Abstract The paper analyses the credibility problem related to policy announcements. Specifically the incentives related to announcements of disinflationary policies are considered and conditions are given for credible and non-credible announcements. Moreover, the implications for output and inflation of a non-credible disinflationary policy are analysed.

Effort, taxation and unemployment

The importance of the design of the income tax system for the incentive to supply effort is considered for both a situation where firms (efficiency wage model) or unions (monopoly union model) have the power to determine wages. A tax reform raising marginal taxes at all income levels and increasing (decreasing) average taxes at high (low) income levels may lead to higher wages, lower employment and higher unemployment under either wage determination regime.

The future of the welfare state

1. The Welfare Economics of the Welfare State: Agnar Sandmo. 2. Welfare State Disincentives with Endogenous Habits and Norms: Assar Lindbeck. 3. A Theory of the Welfare State: Hans-Werner Sinn. 4. Factor Mobility, Risk and Redistribution in the Welfare State: David E Wildasin. 5. Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model: Soren Blomquist and Vidar Christiansen. 6. Why are Taxes so High in Egalitarian Societies: Mats Persson. 7. Family Policy with Non-cooperative Families: Kai A. Konrad and Kjell Erik Lommerud. 8. Socio-Economic Status and Child Health: Does Public Health Insurance Narrow the Gap: Janet Currie. 9. Is it Legitimate to Encourage Work Sharing?: Nina Maderner and Jean-Charles Rochet. 10. Labor Supply Responses and Welfare Effects of Tax Reforms: Rolf Aaberge, John K Dagsvik and Steinar Strom.