Labour Market Reforms and Homelessness in Germany and Denmark.pdf
Ex-ante policy analysis of EU Labour Market Reforms Dutch...
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EU Labour Market Reforms Brussels 14-03-2007 Ex-ante policy analysis of Dutch labour market reforms Ruud A. de Mooij CPB and Erasmus University
Transcript of Ex-ante policy analysis of EU Labour Market Reforms Dutch...
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Ex-ante policy analysis of Dutch labour market reforms
Ruud A. de MooijCPB and Erasmus University
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Ex-ante policy analysis at CPB
Analysis of concrete Dutch policy proposals► Electoral programmes► Coalition agreement► Proposals of the opposition
Instrument in welfare state reform: MIMIC► Firmly grounded in economic theory► Empirically founded in estimation & calibration► Considerable detail of institutions
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Today’s talk
Methodological► Properties of MIMIC
Policy analysis of labour-market reforms► Targeted relief for the low skilled► Individualizing taxes & partner relief► Child(care) subsidies
Conclusions► Modelling► Policy reforms
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General properties of MIMIC
Emphasis in the model► Labour supply behaviour► Structural unemployment► Dutch tax-benefit system
What makes MIMIC unique?► Microsimulation of many households► Embedded in general equilibrium with simple core► Modelling of Dutch institutions
► Interaction ex-ante & ex-post analysis
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Building blocks of MIMIC
Households► Labour supply► Job search by unemployed
Firms► Labour demand► Vacancies and job matching
Wage formation Structural unemployment
Closure
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Households
Household types► Families & singles► With & without children► Low & high skilled individuals
Per household type► Income distribution based on microdata per
individual► Labour-supply choice per individual derived from
utility maximization s.t. HBC
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Labour supply
Discrete options for labour supply– Primary earners: 3 options– Secondary earners: 5 options– Singles: 4 options
Labour supply choices governed by ordinaryincome and substitution effects► Uncompensated elasticity of labour supply
– Primary earners 0.1– Secondary earners 0.5– Singles 0.25
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Job matching
Firms determine labour demand► Exogenous job quits vacancies► Acceptance rate is endogenous (minimum wage)
Unemployed households search► Exogenous lay-offs – unemployed► Search & acceptance (reservation wage)
Matching vacancies & unemployed► More efficient matching reduces costs of filling a
vacancy raises job creation & acceptance
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Wage formation – right to manage
Bargaining between employer and trade unionover W; employer determines L
W = f [ … , Ta, Tm, R, U]
Elasticity in equilibrium► Ta = average tax 0.6► Tm = marginal tax – 0.1► R = replacement rate 0.3*► U = unemployment rate – 0.1*
* Reinforcing mechanisms
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Understanding the institutions
High marginal taxes► Reduce hours worked (substitution effect)► Reduce structural unemployment (‘Robin Hood’)
High average taxes► Reduce female participation (extensive margin)► Increase hours worked (income effect)► Increase unemployment (‘wage resistance’)
High replacement rates► Reduce job search (reduce matching efficiency)► Increase structural unemployment
High minimum wages► Reduce acceptance by firms matching efficiency
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Simulations with MIMIC
Baseline 2007-2040
Policy reforms 2040 relative to baseline► Income tax reforms; social benefits; child support;
wage subsidy schemes; minimum wage regulation
All reforms budgetary neutral ex-post► Balance budget by adjusting income tax rates
Focus on labour market effects– Labour supply; Unemployment; Employment
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List of simulations
Cutting unemployment benefitsTargeted tax relief for low skilled► Labour tax credit► Targeted credits► Relief for employers
Relief for secondary earners► Credit► Child care subsidies
Individualisation► Taxation: abolish transferable credit► Transfers: basic income
Families with children
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Lower/shorter unemployment benefits (10% reduction)
0.7Employment
– 0.4Unemployment
0.20.10.30.1
0.3
Labour supply- primary earner-secondary earner-single person
Participation rate
– 2.3Replacement rate
– 0.1Marginal tax
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Labour tax credit € 360 & 1%-pt rise in income tax rates (0.5% GDP)
0.1Employment (%∆)
– 0.3– 0.6– 0.2
Unemployment rate (∆)-low skilled-high skilled
– 0.2Labour supply (%∆)
– 0.8Replacement rate (∆)
0.6Marginal tax (∆)
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7 EITC’s
Start from fixed credit of € 360
Explore 7 alternative EITC´s with the samebudgettary cost (ex-ante)
Compare consequences for the labour marketwe present the difference in result
► I.e. effects of EITC, financed with fixed credit
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Earned income tax credits
0
0.5
1
1.5
2
2.5
3
0 10 20 30 40 50 60income in 1000 euro
cred
it in
100
0 eu
ro phased out at very low incomephased out at low incomephased in slow phased out quikphased out at medium incomephased out at high incomeflat, build up at high incomeflat, build up at medium incomeflat, for all workers
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Effects on unemployment:targeting is more efficient!
-0,12
-0,08
-0,04
0
0,04
in 8-16 in 16-24 out 16-20 out 16-24 out 20-24 out 24-32 out 32-40
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Effects on labour supply: targeting is more costly!
-3
-2
-1
0
1
2
in 8-16 in 16-24 out 16-20 out 16-24 out 20-24 out 24-32 out 32-40
Labour supply - primary - secondary - single
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Targeted relief for employer hiring low skilled (0.5% GDP)
0.0Employment (%∆)
– 0.1– 0.4
0.0
Unemployment (∆)-low skilled-high skilled
– 0.1Labour supply (%∆)
0.0Replacement rate (∆)
1.2Marginal tax (∆)
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Targeted relief for secondary earners (0.5% & 0.2% GDP)
0.0– 0.2Unemployment (∆)
0.20.20.3
– 0.1
0.1– 0.3
2.4– 0.3
Labour supply (%∆)-Primary-Secondary-Single
0.22.9Participation rate (∆)
Child care subsidies
Tax Credit
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Individual taxation vs basic income
– 3.80.7Employment
– 1.90.1Unemployment
– 5.3– 1.4– 8.8– 7.4
– 10.0
1.00.14.80.4
9.5
Labour supply-Primary earner-Secondary earner-Single person
Participation rate
– 2.6– 0.0Replacement rate
7.8– 0.6Marginal tax
Introduce basicincome
Abolish transfer of partner credit
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Basic support to families with children (0.5% GDP)
– 0.4Employment
– 0.1Unemployment
– 0.4– 0.3– 0.6– 0.4
– 0.5
Labour supply- primary earner-secondary earner-single person
Participation rate
0.5Replacement rate
0.6Marginal tax
General child benefits
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Conclusion
Methodological► Ex-ante modelling helps thinking► Critical triangle: theory, institutions & empirics
Policy analysis► Quantify equity-efficiency trade-off► Quantify extensive-intensive margin trade-off
Future work on MIMIC► Comprehensive welfare analysis
