Pareto-Improving Unemployment Policies

Abstract

CWe investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of lowwage earners. Lower unemployment replacement rates reduce unemployment, the net wage and unemployment benefits. A lower tax on labour increases net wages and unemployment benefits. Combining these two policies allows to reduce unemployment without reducing net income of workers or of the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.Inequality, Unemployment, Taxation, Policy reform