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Labour market effects of flexicurity from a regional

This is a thesis by AYOLT J. DE GROOT & J. PAUL ELHORST (2009).
My master degree thesis will be based on the concept of this thesis.

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Labour market effects of flexicurity from a regional

  1. 1. LABOUR MARKET EFFECTS OF FLEXICURITY FROM A REGIONAL PERSPECTIVE AYOLT J. DE GROOT & J. PAUL ELHORST 151E603E Haruki SAIJO
  2. 2. Research question •Could Danish flexicurity model be also successful in other European countries if they applied the whole policies? → almost same question as the theme of my graduation thesis
  3. 3. Research question • Basic knowledge to understand this topic About Flexicurity About Danish model
  4. 4. Research question • Basic knowledge to understand this topic About flexicurity Government Employers Labours Dismiss easily Find new job easily
  5. 5. Research question • Basic knowledge to understand this topic About Danish model Flexicurity was remarkably successful in Denmark. The Golden Triangle  the degree of employment protection legislation→ historically low  government expenditure on active labour market → high  government expenditure on unemployment benefit → high Plus Danish uniqueness  historically, the spirit of welfare  large cost → from high taxation To copy Danish model is difficult
  6. 6. Answer • Could Danish flexicurity model be also successful in other European countries if they applied the whole policies? • Other European countries such as the Netherlands can permanently, lower its unemployment rate by 1.47 increase its participation by 2.08 Increase employment growth rates by 1.05 If they copy Danish model,
  7. 7. Data and Methodology • Data → regional data (why?) To deal with regions equally Most research is limited to national data.
  8. 8. Data and Methodology • Methodology Blanchard-Katz model (established in 1992) Relationship among unemployment rate, participation rate, and employment growth 𝑢 = 𝛽11 𝑢 −1 + 𝛽12 𝑝 −1 + 𝛽13 𝑒 −1 + 𝛽14 𝑝 𝑝 = 𝛽21 𝑢 −1 + 𝛽22 𝑝 −1 + 𝛽23 𝑒 −1 + 𝛽24 𝑢 𝑒 = 𝛽31 𝑢 −1 + 𝛽32 𝑝 −1 + 𝛽33 𝑒 −1
  9. 9. Data and Methodology • Methodology Modification → put the three factors of Danish model (Golden Triangle: UB, ALMP, and EPL) UB influences unemployment rate (higher → less eager to find job) EPL influences employment growth (its effect is still vague.) ALMP influences in two ways. To the unemployed → unemployment rate (negative) To non-labour force → participation rate (positive) 𝑢 = 𝛽11 𝑢 −1 + 𝛽12 𝑝 −1 + 𝛽13 𝑒 −1 + 𝛽14 𝑒 + 𝛽15 𝑈𝐵 + 𝛽16 𝐴𝐿𝑀𝑃 𝑝 = 𝛽21 𝑢 −1 + 𝛽22 𝑝 −1 + 𝛽23 𝑒 −1 + 𝛽24 𝑒 + 𝛽25 𝐴𝐿𝑀𝑃 𝑒 = 𝛽31 𝑢 −1 + 𝛽32 𝑝 −1 + 𝛽33 𝑒 −1 + 𝛽34 𝐸𝑃𝐿 Recursive model
  10. 10. Data and Methodology • Methodology It should be modified because….. Employment growth → Unemployment rate, Participation rate (recursive model) →The shock to labour supply side is not considered They should be determined at the same time.(simultaneous model) 𝑢 = 𝛽11 𝑢 −1 + 𝛽12 𝑝 −1 + 𝛽13 𝑒 −1 + 𝛽14 𝑝 + 𝛽15 𝑒 + 𝛽16 𝑈𝐵 + 𝛽17 𝐴𝐿𝑀𝑃 𝑝 = 𝛽21 𝑢 −1 + 𝛽22 𝑝 −1 + 𝛽23 𝑒 −1 + 𝛽24 𝑢 + 𝛽25 𝑒 + 𝛽26 𝐴𝐿𝑀𝑃 𝑒 = 𝛽31 𝑢 −1 + 𝛽32 𝑝 −1 + 𝛽33 𝑒 −1 + 𝛽34 𝑢 + 𝛽35 𝑝 + 𝛽36 𝐸𝑃𝐿
  11. 11. Result • Result (recursive model) Problem → ALMP is negative in participation rate Multicollinearity (u[-1] and u, p[-1] and p) e[-1] and e → small
  12. 12. Result • Result (simultaneous model) • Drop off some factors to avoid multicollinearity. u[-1] from participation pate p[-1] from unemployment rate u[-1] and p[-1] from employment growth 𝑢 = 𝛽11 𝑢 −1 + 𝛽12 𝑝 −1 + 𝛽13 𝑒 −1 + 𝛽14 𝑝 + 𝛽15 𝑒 + 𝛽16 𝑈𝐵 + 𝛽17 𝐴𝐿𝑀𝑃 𝑝 = 𝛽21 𝑢 −1 + 𝛽22 𝑝 −1 + 𝛽23 𝑒 −1 + 𝛽24 𝑢 + 𝛽25 𝑒 + 𝛽26 𝐴𝐿𝑀𝑃 𝑒 = 𝛽31 𝑢 −1 + 𝛽32 𝑝 −1 + 𝛽33 𝑒 −1 + 𝛽34 𝑢 + 𝛽35 𝑝 + 𝛽36 𝐸𝑃𝐿
  13. 13. Result • Result (simultaneous model) • Drop off some factors to avoid multicollinearity. • ALMP is no longer significantly negative.
  14. 14. Data and Methodology 2 • Use the Dutch 2001 regional averages for the u[-1], p[-1], e[-1], EPL, UB, and ALMP 1. With the estimated coefficients from recursive model 2. With the estimated coefficients from simultaneous model • While u[-1], p[-1], and e[-1] are not changed, EPL, UB, and ALMP change to the level of Denmark model. • Put them into the equation with the coefficients to get the altered number.
  15. 15. Result 2 • The result from recursive model
  16. 16. Result 2 • The result from simultaneous model
  17. 17. Result 2 • The author concludes that The result from simultaneous is more realistic than that from recursive model. • The reason is …… participation rate immediately increases if ALMP increases in the result from simultaneous model.
  18. 18. Result 2 • This difference is from … the difference of the effect of ALMP on participation rate • The effect of ALMP on participation rate should not be negative. • The author used the result from simultaneous model for the conclusion.
  19. 19. Result 2 • Other European countries such as the Netherlands can permanently, lower its unemployment rate by 1.47 increase its participation by 2.08 Increase employment growth rates by 1.05 It would be successful to some extent.
  20. 20. Implication • The possibility to use the data of Japan instead.  I already have data, but it is not regional. I have to take it into consideration to deal with social or cultural difference. • This thesis is limited to using the Dutch data. • The obstacle against applying Danish model: cost, the history of welfare. • Modify the equation more to adopt it to other countries

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This is a thesis by AYOLT J. DE GROOT & J. PAUL ELHORST (2009). My master degree thesis will be based on the concept of this thesis.

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