Do Social Policies Harm Employment and Growth?

Arbeitspapier

In economies with competitive labour markets social policies harm employment and output. In Europe, in particular, non-competitive labour markets with trade unions, efficiency wages and/or costly search and mismatch seem more realistic. Social policies such as progressive taxation or facilitating corporatism may well induce wage moderation and boost employment and output. Although unconditional unemployment benefits destroy jobs, conditional benefits may spur job growth. In a second-best world usual effects of social policies are thus overturned. In addition, the incidence of taxation and the effects of tax progressivity depend crucially on the specific features of the welfare state, e.g., whether benefits are indexed to wages or not. In a full political-economic equilibrium a more equitable distribution of income and assets leads to a median voter who is better off and thus votes for less 'populist' policies. Hence, employment and economic growth will be higher and inflation lower. In general the supremacy of 'laisser faire' is questioned also by international comparisons.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 886

Classification and Topics

• Classification: Wirtschaft
• Subject: social policies ; conditional unemployment benefits ; non-competitive labour markets ; employment ; growth ; politics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): van der Ploeg, Frederick
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/76287
• Last update: 10.03.2025, 11:42 AM CET