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Abstract:
This article is an idiosyncratic survey of the insider-outsider theory, describing the vision underlying the theory, and evaluating salient contributions to the literature in the light of this vision. We also indicate what appear to have been dead-ends and red herrings in past research. The first section deals with the theory, concerning how labor turnover costs influence insider wages and outsiders' opportunities and how these costs affect employment and unemployment. We also address the more complex, and open, question of how employment and unemployment move through time, in response to labor market shocks. The second section deals with the insider-outsider theory in relation to two important economic institutions: unions and social norms. The third section confronts the relevant empirical evidence. Finally, the last section concludes by clarifying some common misunderstandings and identifying promising areas of future research.

Employment, Unemployment, Wages, Insiders, Outsiders, Unemployment Persistence, Social Exclusion, Labor Turnover Costs

Abstract:
The author applies a systems-oriented holistic approach to China's radical economic reforms during the past quarter of a century. He characterizes China's economic reforms in terms of a multidimensional classification of economic systems. When looking at the economic consequences of China's change of economic system, he deals with both the impressive growth performance and its economic costs. The author also studies the consequences of the economic reforms for the previous social arrangements in the country, which were tied to individual work units - agriculture communes, collective firms, and state-owned enterprises. He continues with the social development during the reform period, reflecting a complex mix of social advances, mainly in terms of poverty reduction, and regresses for large population groups in terms of income security and human services, such as education and, in particular, health care. Next, the author discusses China's future policy options in the social field, whereby he draws heavily on relevant experiences in industrial countries over the years. The future options are classified into three broad categories: policies influencing the level and distribution of factor income, income transfers including social insurance, and the provision of human services.

Economic Theory & Research, Banks & Banking Reform, Investment and Investment Climate, Privatization, Economic Systems

Abstract:
It has turned out to be difficult to adjust welfare-state arrangements to new circumstances. This paper emphasizes developments in the labor market and changes in the structure and preferences of the family. The former include changes in demography, productivity growth and international linkages as well as increased part-time work, new types of labor-market contracts and tendencies toward an "insider-outsider divide" in the labor market. Changes in family structure include a rise in female labor-force participation, a decline in family stability, more variation in individual life cycles and increased individualization of values and life styles. A number of alternative welfare-state reforms are also considered.

Welfare State, Changes in Labor Market, Changes in Family Structure

Abstract:
The expansion of welfare-state arrangements is seen as the result of dynamic interaction between market behaviour and political behaviour, often with considerable time lags, sometimes generating either virtuous or vicious circles. Such interaction may also involve induced (endogenous) changes in social norms and political preferences. Moreover, the internationalisation process not only limits the ability of national governments to redistribute income; it also increases the political demands for international mobility of
welfare-state benefits and social services. I also discuss the dynamics of reforms and retreats of welfare-state arrangements.

Welfare State, Welfare-state Dynamics, Political Equilibrium, Social Norms

Abstract:
The paper analyses the interaction between economic incentives and work norms in the context of social insurance. If the work norm is endogenous in the sense that it is weaker when the population share of beneficiaries is higher, then voters will choose less generous benefits than otherwise. We also discuss welfare-state dynamics when there is a time lag in the adjustment of the norm in response to changes in this population share, and show how a temporary shift in the unemployment rate may cause persistence in the number of beneficiaries.

Welfare State, Social Norms, Social Insurance

Abstract:
Children who can count on support from altruistic parents may not try hard to succeed in the labor market. Moreover, parental altruism makes withdrawal of such support non-credible. To promote work effort, parents may want to instill norms which later cause their children to experience guilt or shame associated with failure to support themselves. While social insurance pools risk across families, we show that it also creates a free-rider problem among parents in terms of norm formation. We also examine the formation of norms requiring children to support their parents financially in old age.

Work Norms, Social Insurance, Altruism

Abstract:
This Paper presents a new approach to the theory of the firm by identifying factor complementarities as central to the determination of the firm's boundaries. The factor complementarities may take a variety of forms: technological and informational complementarities, as well as economies of scale and scope. We examine the trade-off between the gains from these complementarities and transactions costs. In so doing, we must abandon the standard dichotomy between the determinants of plant size and firm size. The influence of factor complementarities on firm size is examined in partial and general equilibrium frameworks.

Economies of scale and scope, firm, transaction costs, factor complementarities

Abstract:
This paper presents a new approach to the theory of the firm by identifying factor complementarities as central to the determination of the firm's boundaries. The factor complementarities may take a variety of forms: technological and informational complementarities, as well as economies of scale and scope. We examine the tradeoff between the gains from these complementarities and transactions costs. In so doing, we must abandon the standard dichotomy between the determinants of plant size and firm size. The influence of factor complementarities on firm size is examined in partial and general equilibrium frameworks.

Abstract:
The paper discusses a number of threats to the financial sustainability of social spending: increased internationalization of national economies, gradually higher relative costs of producing a number of human services, the "graying" of the population, slower productivity growth in the private sector, low employment rates, and various types of disincentive effects related to the welfare state itself, including moral hazard. I argue that threats from gradually rising costs of providing human services and disincentive effects of welfare-state arrangements, in particular moral hazard and benefit dependency, are more difficult to deal with than the other threats. I also discuss the choice between ad hoc policy reforms and automatic adjustment mechanisms, delegated to administrative bodies, for dealing with these threats.

sustainable fiscal policy, Baumol's disease, moral hazard, automatic adjustment mechanisms

Abstract:
The paper examines the determinants of the division of labor within firms. It provides an explanation of the pervasive observed changes in work organization away from the traditional functional departments and towards multi-tasking and job rotation. Whereas the existing literature on the division of labor within firms emphasizes the returns from specialization and the need for coordination of the work of different workers, the present analysis focuses on the returns from multi-tasking, which is shown to arise from informational and technological complementarities among tasks as well as from the exploitation of the versatility of human capital. The paper also explores how the move towards multi-tasking can affect the labor market, and the distribution of firms across organizational forms.

Division of labor, specialization, multi-tasking, organization of work, technological change, information flows

Abstract:
A large literature on ex ante moral hazard in income insurance emphasizes that the individual can affect the probability of an income loss by choice of lifestyle and hence, the degree of risk-taking. The much smaller literature on moral hazard ex post mainly analyzes how a "moral hazard constraint" can make the individual abstain from fraud ("mimicking"). The present paper instead presents a model of moral hazard ex post without a moral hazard constraint; the individual's ability and willingness to work is represented by a continuous stochastic variable in the utility function, and the extent of moral hazard depends on the generosity of the insurance system. Our model is also well suited for analyzing social norms concerning work and benefit dependency.

moral hazard, sick pay insurance, labor supply, asymmetric information

Abstract:
This paper analyzes economic-social interaction in China in connection with the country's change of economic system. I define an economic system in terms of a multidimensional vector of broad institutional characteristics, and I emphasize that important features of the social development are closely related to specific changes in these various dimensions. I classify China's options for future social improvements into three broad categories: policies that improve the stability and distribution of factor income; government-created wedges between factor income and disposable income; and improvements in the quantity, quality and distribution of human services, such as education and health care.

China, economic transition, typology of economic systems, social reforms

Abstract:
The new information and communication technology, ICT, induces households to take over tasks from firms and government agencies, using tools and systems provided by these very same organizations. The result is often joint production activities. We argue that the importance of ICT for the exchange process between households and organizations is underestimated by only considering the consequences for the last stage of the process, i.e., the final purchase of goods and services. Our analysis of household behavior utilizes a modified version of Gary Becker's model of the household as a combined producer-consumer.

Internet Information, E-exchange, Household Production, Co-production, Household Power, Exit/Voice

Abstract:
Does the average level of sickness absence in a neighborhood affect individual sickness absence through social interaction on the neighborhood level? To answer this question, we consider evidence of local benefit-dependency cultures. Well-known methodological problems in this type of analysis include avoiding the so-called reflection problem and disentangling the causal effects of group behavior on individual behavior from the effects of individual sorting on neighborhoods. Based on data from Sweden, we adopt several different approaches to deal with these problems. The results are robust in the sense that regardless of approach and identifying assumptions, we obtain statistically significant estimates indicating group effects.

sick-pay insurance, work absence, moral hazard, social norms

Abstract:
We analyze the consequences for sickness absence of a selective softening of job security legislation for small firms in Sweden in 2001. According to our differences-in-difference estimates, aggregate absence in these firms fell by 0.2-0.3 days per year. This aggregate net figure hides important effects on different groups of employees. Workers remaining in the reform firms after the reform reduced their absence by about one day. People with a high absence record tended to leave reform firms, but these firms also became less reluctant to hire people with a record of high absence.

seniority rules, sick pay insurance, firing costs, moral hazard

Abstract:
We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.

Stability and Growth Pact, spillover effects, policy failures, Pigouvian taxes, policy delegation

Abstract:
The paper discusses the consequences for the functioning of different pension systems of various types of socioeconomic changes, mainly demographic developments, variations in productivity growth and changes in real interest rates. Two of the pension systems have exogenous and four have endogenous contribution rates. I analyze both marginal and radical pension reforms for the purpose of making pension systems more stable, avoiding arbitrary redistibutions between generations and dealing with increased heterogeneity of the population in terms of family structure and international mobility. The advantages of combining PAYGO and actuarially fair systems are pointed out.

Abstract:
This paper analyzes economic social interaction in China in connection with the country's change of economic system. I define an economic system in terms of a multi-dimensional vector of broad institutional characteristics, and I emphasize that important features of the social development are closely related to specific changes in these various dimensions. I classify China's options for future social improvements into three broad categories: (i) policies that improve the stability and distribution of factor income; (ii) government-created wedges between factor income and disposable income; and (iii) improvements in the quantity, quality and distribution of human services, such as education and healthcare.

Abstract:
We analyze economic rationales for, and possible alternatives to, the Stability and Growth Pact (SGP). We identify various cross-country spillover effects and domestic policy failures as potential rationales. The two sets of problems suggest different corrective measures, and different measures than those applied in the context of the SGP. We contrast the legalistic perspective adopted in the Pact with a more incentive-based approach and discuss how the "legalistic" perspective gives rise to enforcement problems in connection with the implementation of the SGP's sanctions.

Abstract:
The paper analyzes the contemporary organizational restructuring of production and work within firms. We emphasize the shift from a "Tayloristic" organization of work (characterized by significant specialization by tasks) to a "holistic" organization (featuring job rotation, integration of tasks and learning across tasks). We examine four driving forces behind this restructuring process: advances in production technologies promoting technological task complementarities, advances in information technologies promoting informational task complementarities, changes in worker preferences in favor of versatile work, and advances in human capital that make workers more versatile. Our analysis can also help explain the recent widening of wage differentials and disparities in job opportunities, not only between groups with similar characteristics, but also within these groups.

Abstract:
This paper provides a new explanation of why inflation is sluggish in response to aggregate demand shocks and why aggregate output changes as result of such shocks. We argue that these phenomena are related to lags between inputs and outputs in the production process, "production lags" for short. The broad intuition is that production activities in a modern economy are interconnected through complex input-output relations, with production lags within individual firms, and that it takes considerable time for cost and price changes to penetrate the entire input-output system. Our analysis provides a rationale for a prolonged inverse relation between inflation and unemployment. The paper suggests that the interaction of inflation persistence and unemployment persistence may offer a possible explanation of high and prolonged European unemployment.

Abstract:
The paper examines the determinants of the division of labor within firms. It provides an explanation of the pervasive change in work organization away from the traditional functional departments and towards multi-tasking and job rotation. Whereas the existing literature on the division of labor within firms emphasizes the returns from specialization and the need for coordination of the work of different workers, the present analysis focuses on the returns from multi-tasking, which is shown to arise from informational and technological complementarities among tasks as well as from the exploitation of the versatility of human capital.

Abstract:
In an analysis of the risk-sharing properties of different types of pension systems, we show that only fixed-fee pay-as-you-go (PAYG)pension systems can provide risk sharing for living individuals. Under some circumstances, however, other PAYG pension systems can enhance the expected welfare of all generations by reducing intergenerational income variability. The paper derives conditions for this to occur. It also analyses the stability of actuarially fair PAYG pension systems. It is shown that if an actuarially fair pension with a non-balanced budget system is dynamically stable, its accumulated surpluses will converge to the same fund as in a fully funded system. The paper also shows that the welfare loss due to labour market distortions will, in fact, increase if the implicit marginal return in a compulsary system is raised above the average return.

Abstract:
This paper deals with economic incentives and welfare-state arrangements in OECD countries. It discusses both positive and negative incentives for economic efficiency and economic growth. After an analysis of static considerations, the paper concentrates on what may be called "dynamic" incentive issues, i.e., incentive effects that evolve over time. The discussion covers also the interplay between incentives and social norms among individuals, including endogenous changes in these norms. A number of marginal and radical reforms of the welfare state are discussed. At the end, the paper offers some lessons for would-be welfare states.