Flexicurity, Taxes and Job Reallocation

37 Pages Posted: 24 Apr 2015

See all articles by Thomas Davoine

Thomas Davoine

Institute for Advanced Studies (IHS)

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: April 23, 2015

Abstract

This paper considers the role of flexicurity when jobs must be reallocated from a declining, traditional sector to a skill intensive expanding sector. Workers initially decide whether to acquire qualifications for skill-intensive tasks or to accept a less demanding traditional job. Unemployment arises from job separation in the declining sector and difficulties in retraining for new employment in the expanding sector. The paper derives an optimal welfare policy which combines the design of the tax schedule with three pillars of ‘flexicurity’. The optimal policy includes (i) a progressive wage tax schedule; (ii) a wage subsidy to re-employed workers; (iii) unemployment insurance; (iv) moderate job protection; and (v) active labor market policy to facilitate job reallocation.

Keywords: flexicurity, insurance, job protection, active labor market policy

JEL Classification: H220, J640, J650

Suggested Citation

Davoine, Thomas and Keuschnigg, Christian, Flexicurity, Taxes and Job Reallocation (April 23, 2015). CESifo Working Paper Series No. 5302. Available at SSRN: https://ssrn.com/abstract=2598004

Thomas Davoine

Institute for Advanced Studies (IHS) ( email )

Josefstädter Straße 39
1080 Vienna
Austria

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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