Nominal rigidities and the optimal rate of inflation

This paper analyses two reasons why inflation may interfere with price adjustment so as to create inefficiencies in resource allocation at low rates of inflation. The first argument is that the higher the rate of inflation the lower the likelihood that downward nominal rigidities are binding (the Tobin argument) which implies a non-linear Phillips-curve. The second argument is that low inflation strengthens nominal price rigidities and thus impairs the flexibility of the price system resulting in a less efficient resource allocation. It is argued that inflation can be too low from a welfare point of view due to the presence of nominal rigidities, but the quantitative importance is an open question

Taxes and employment - is there a Scandinavia puzzle ?

Recent debates have suggested that taxation is very detrimental to labour force participation and employment. However, some countries - notably the Scandinavian - stand out as contradictions to this view since they have managed to sustain high labour force participation despite high tax rates and a generous social safety net.This paper considers the experience of European countries and Scandinavia compared to the US and asks whether Scandinavian countries are outliers. First, it is argued that the simple "tax argument" does not capture the European experience since labour force participation for some age groups is at the same or a higher level than the US. Second, it is argued that even though the social safety net is generous in Scandinavian countries, it is also very employment conditional. It is shown that these conditionalities can make high labour force participation consistent with a high marginal effective taxation of labour, and that it on the margin lowers the marginal costs of public funds. The design of the social safety net is therefore important in accounting for the Scandinavian experience.Taxes and employment, is there a Scandinavia puzzle? taxation of labour, employment, labour force participation, social safety net, Andersen

Wage formation and European integration

European integration is likely to affect labour market performance through various routes. One important channel is the effects product market integration has on labour markets. This paper reviews how product market integration may strengthen labour market interdependencies between integrating economies and therefore affect both the level of employment and the flexibility by which wages adjust to shocks.integration, european integration, labour market performance, product market integration, wage formation, wages, employment, Andersen

Macroeconomics - Which Way Now?

Recent developments in macroeconomics are reviewed, and it is argued that a better understanding of the role of market failures and institutions is a major achievement. The insights in when and how policy intervention may be called for have thus been improved. However, the progress does not imply that we are approaching a situation where business cycles can be “controlled”; rather it implies that we better understand why this would be very difficult if not impossible.

Distribution and labour market incentives in the welfare state – Danish experiences

In recent years, Denmark has been successful in ensuring and maintaining a low unemployment rate. However, almost one third of the working-age population remains dependent on public transfers, a fact which poses questions on both social inclusion and financial pressures on the welfare state. In this paper, we consider more closely the interaction between the social safety net and the need and scope for maintaining a high employment rate in a welfare state of the Scandinavian type. The focus is on the basic dilemma between ambitious distributional goals on the one hand and work incentives on the other. The paper discusses policy issues related to minimizing welfare dependence that improve the transition from welfare to work. We consider these issues in a life cycle perspective considering entry into the labour market, maintenance of labour market contact, and exit from the labour market. Finally, we consider some recent reform proposals and initiatives in Denmark.Incentives to work; Social safety net; Distribution

Longevity, Growth and Intergenerational Equity - The Deterministic Case

Challenges raised by ageing (increasing longevity) have prompted policy debates featuring policy proposals justified by reference to some notion of intergenerational equity. However, very different policies ranging from pre-savings to indexation of retirement ages have been justified in this way. We develop an overlapping generations model in continuous time which encompasses different generations with different mortality rates and thus longevity. Allowing for trend increases in both longevity and productivity, we address the issue of intergenerational equity under a utilitarian criterion when future generations are better off in terms of both material and non-material well being. Increases in productivity and longevity are shown to have very different implications for intergenerational distribution.

Pension adequacy and sustainability : An evaluation of the Finnish pension system

An international and independent evaluation of the Finnish pension system conducted by Professor Torben M. Andersen (Aarhus University) at the request of the Finnish Centre for Pensions. Available only online

Labour-Market Reforms in Europe: Repairing Problems or Investing to Prevent? Bertelsmann Stiftung sim europe November 2017

For most people, obtaining economic and social opportunities depends on access to labour-markets. Effective and flexible labour-markets allow economies to cope more easily with ageing and the disruptions of innovation and globalisation. Positive outcomes include the ability for women and men to reconcile work and family life adequately; young people’s ability to make a smooth transition from education to work; and robust labour-market integration for immigrants, allowing them to become active contributors to the economy and the welfare state. Policymakers must strike a balance between preventive and corrective strategies. If a country fails to implement preventive measures, it must later make policy corrections on an ex post basis, which often entail very high costs. A survey of 1,058 experts evaluates both the need for reform and actual reform performance, as measured by the frequency and quality of reform, within the EU-28 countries. The survey covers five areas of social inclusion, including poverty prevention, education, labour-market access, social cohesion and non-discrimination, and health. While there is significant variation across member states, experts perceive the most urgent need for reform in the area of improving access to labour-markets; however, reform performance here is middling at best