What If Supply-Side Policies are Not Enough? The Perverse Interaction of Flexibility and Austerity

44 Pages Posted: 26 Jan 2018

See all articles by Giovanni Dosi

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Marcelo C. Pereira

University of Campinas

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Fran├žais des Conjonctures Economiques (OFCE)

Maria Enrica Virgillito

Scuola Superiore Sant'Anna di Pisa

Date Written: January 8, 2018

Abstract

In this work we develop a set of labour market and fiscal policy experiments upon the labour and credit augmented "Schumpeter meeting Keynes" agent-based model. The labour market is declined under two institutional variants, the "Fordist" and the "Competitive" set-ups meant to capture the historical transition from the Fordist toward the post "Thatcher-Reagan" period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits simply meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the perverse interaction between exibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers' skills deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to improve and sustain long-run growth.

Keywords: Industrial-Relation Regimes, Flexibility, Active Labour Market Policies, Austerity, Agent-Based Models

JEL Classification: C63, E24, H53, J88

Suggested Citation

Dosi, Giovanni and Pereira, Marcelo and Roventini, Andrea and Virgillito, Maria Enrica, What If Supply-Side Policies are Not Enough? The Perverse Interaction of Flexibility and Austerity (January 8, 2018). Available at SSRN: https://ssrn.com/abstract=3105496 or http://dx.doi.org/10.2139/ssrn.3105496

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

HOME PAGE: www.lem.sssup.it

Marcelo Pereira (Contact Author)

University of Campinas ( email )

Rua Pitagoras 353
Campinas, Campinas 13088-857
Brazil

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Fran├žais des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

Maria Enrica Virgillito

Scuola Superiore Sant'Anna di Pisa ( email )

Biblioteca Scuola Superiore Sant'Anna
Piazza Martiri della Liberta, n. 33
Pisa, 56127
Italy

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