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.

1. LABOUR MARKET
EFFECTS OF
FLEXICURITY FROM A
REGIONAL PERSPECTIVE
AYOLT J. DE GROOT & J. PAUL ELHORST
151E603E Haruki SAIJO

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. Research question
• Basic knowledge to understand this topic
About Flexicurity
About Danish model

4. Research question
• Basic knowledge to understand this topic
About flexicurity
Government
Employers Labours
Dismiss easily
Find new job easily

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. 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. Data and Methodology
• Data → regional data (why?)
To deal with regions equally
Most research is limited to national data.

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. 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. 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. 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. 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. Result
• Result (simultaneous model)
• Drop off some factors to avoid multicollinearity.
• ALMP is no longer significantly negative.

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. Result 2
• The result from recursive model

16. Result 2
• The result from simultaneous model

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. 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. 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. 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