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Symposium 2008

Proposal - Creating Employment

The Challenge

Many people in the developed world are not participating in the growth of the world economy. In some countries, unemployment remains high, whereas others suffer from the problems of the working poo ...

Many people in the developed world are not participating in the growth of the world economy. In some countries, unemployment remains high, whereas others suffer from the problems of the working poor. What are the most effective policies for creating employment – particularly in well-paid, satisfying jobs – in OECD countries?

Economic research has shown that across industrial countries unemployment rates are highly correlated with measures of the generosity of the welfare system. In particular, there seems to be a close connection between the level of unemployment benefits and the duration of entitlements. In addition, the restrictiveness of the unemployment benefit system seems to play an important role. Given the theoretical and empirical evidence, reforms of the welfare system that strengthen the individual incentives for job search and for work in general should be high on the political agenda in many countries. One way to implement such reforms could be a system of unemployment accounts.

Welfare reforms and the successive wage restraint would also help businesses to offer more jobs. To reduce youth unemployment vocational training systems have in some countries proven to be successful. Government training schemes, in contrast, have often proven expensive and not effective.

Flexible labor markets seem to be superior in creating employment and income opportunities for the poor, in contrast to labor protection schemes such as minimum wages. The latter have the disadvantage that they often need other protectionist measures for their successful implementation. Again, in many countries, the welfare system seems to be an obstacle to employment of the less qualified. Reforms should address the problem of guaranteeing a minimum income of the less qualified while maintaining incentives to work at the same time. Also in this realm, a system of unemployment accounts may help.

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