Macroeconomics and Labor Market Policies
The seminar covers labor markets from a macroeconomic perspective. We discuss the impact of three essential labor market institutions, or labor market policies, on macroeconomic performance: unemployment insurance, employment protection legislation and minimum wages.
Your main task consists of summarizing and providing a critical perspective for the given paper. In particular, you will write a seminar paper and give a presentation. Further, you will be assigned as a discussant to another topic.
The allocation of the topics will be according to your stated preferences and will be announced during the kick-off meeting, which will take place on April 24.
The language of this seminar is English: presentations, discussions and seminar papers will have to be carried out in English.
[UI1] Hopenhayn, Hugo A. and Juan Pablo Niccolini (1997). “Optimal Unemployment Insurance”. Journal of Political Economy 105(2): 412-438.
"An important ingredient of social welfare policies in developed economies is the unemployment insurance program. In spite of their widespread use, unemployment insurance programs have been widely criticized because of the perverse effects they have on the incentives for reemployment. This paper considers the design of an optimal system by modelling the incentive problem created by unemployment insurance and by determining optimal benefits and taxes after reemployment."
[UI2] Jung, Philip and Keith Kuester (2015). “Optimal Labor-Market Policy in Recessions”. American Economic Journal: Macroeconomics 7(2): 124-156.
"Unemployment in the United States has risen sharply in the wake of the Great Recession and has been falling only slowly thereafter. Policymakers have reacted to this by increasing the generosity of unemployment insurance benefits. This paper characterizes optimal labor market policies. The authors consider different instruments for the government to intervene and determine their importance over the business cycle."
[UI3] Michaillat, Pascal (2012). “Do Matching Frictions Explain Unemployment? Not in Bad Times”. American Economic Review 102(4): 1721-1750.
"Experiences from past economic crises suggest that jobs are lacking in recessions, irrespective of frictions in matching unemployed workers to recruiting firms. This paper extends a basic model of labor markets by a mechanism that rations jobs in recessions and shows that the extended model improves upon the ability to explain labor market data from the United States."
[UI4] Shimer, Robert and Iván Werning (2008). “Liquidity and Insurance for the Unemployed”. American Economic Review 98(5): 1922-1942.
"This paper investigates optimal unemployment insurance by considering not only the timing and size of unemployment benefits but also the workers’ access to financial markets. The authors analyze different insurance policies and highlight the importance of the opportunity to borrow for the unemployed."
Employment Protection Legislation
[EPL1] Blanchard, Olivier J. and Jean Tirole (2008). “The Joint Design of Unemployment Insurance and Employment Protection: A First Pass”. Journal of the European Economic Association 6(1): 45-77.
"Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model. We draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits."
[EPL2] Boeri, Tito (2011). “Institutional Reforms and Dualism in European Labor Markets”. In: Ashenfelter, Orley C. and David Card (ed.). Handbook of Labor Economics Vol. 4. Elsevier: 1173-1236.
"Regulatory changes often create long lasting asymmetries, two-tier regimes, between a reformed and an unreformed segment of the labor market. This chapter provides new evidence on reforms in Europe. In light of this evidence, it extends a model of the labor market allowing for two-tier reforms of employment protection, unemployment benefits and employment conditional incentives. Next, it provides evidence on the scale and macroeconomic effects of the dualism induced by these reforms. Finally, it critically surveys the empirical literature drawing on institutional reforms in Europe."
[EPL3] Fella, Giulio (2012). “Matching, Wage Rigidities and Efficient Severance Pay”. The B.E. Journal of Economic Analysis & Policy 12(1): 1-35.
"Mandated employment protection measures associate monetary and shadow costs to workforce adjustment. A common concern is that these “layoff” or “firing” costs result in inefficient labor hoarding and are responsible for the poor employment performance of a number of Continental European countries relative to the United States. Firms and workers have an incentive to negotiate around privately inefficient employment protection legislation. This paper characterizes the implications of mandated severance pay in the presence of matching frictions and wage rigidities when renegotiation is allowed for."
[MW1] Lee, David and Emmanuel Saez (2012). “Optimal Minimum Wage Policy in Competitive Labor Markets”. Journal of Public Economics 96(9-10): 739-749.
"The minimum wage is a widely used but controversial policy tool. A minimum wage can increase low-skilled workers’ wages at the expense of other factors of production - such as higher skilled workers or capital - and hence can be potentially useful for redistribution. However, it may also lead to involuntary unemployment, thereby worsening the welfare of workers who lose their jobs. This paper provides a normative analysis of optimal minimum wage policy in a conventional competitive labor market model."
[MW2] Manning, Alan (2004). “Monopsony and the Efficiency of Labour Market Interventions”. Labour Economics 11(2): 145-163.
"Implicit in many discussions of labour market policy is the assumption that, in the absence of interventions, the operation of the labour market is well-approximated by the perfectly competitive model. This paper analyzes the impact of a variety of policies - the minimum wage, trade unions, unemployment insurance, and progressive income taxation - on efficiency when labour markets are monopsonistic and not perfectly competitive."