Abstract
This work assesses the effectiveness of labour market policies in reducing unemployment during a recession. In order to do so, I build an agent-based model and analyse the impact of typical labour market policies on the short-, medium- and long-term development of unemployment. I analyse the effect of (1) a reduction of unemployment benefits (UB), (2) increasing search efforts among unemployed, (3) a mixture of both aforementioned policy responses, (4) governmental transfers to steer consumption and (5) short-time work. In the following extended abstract, I present the results of two policy experiments, (3) and (5). The methods I use here are slightly different from those in the existing ABM literature. The analyses are carried out as policy experiments. In order to evaluate the effectiveness of a labour market policy, the graphics of this work illustrate range of effects of the specific policy measure on unemployment (mean and confidence intervals across several runs) instead of solely depicting the mean development. In contrast to equilibrium models, I find that measures which raise the pressure on unemployed to find a job, measures (1) to (3), have no noteworthy impact or slightly increase unemployment in the long run. Instead, governmental interventions which stabilise aggregate supply and demand, like (4) and (5), rather dampen unemployment.
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Notes
- 1.
For the model code, please contact the author: tom.bauermann@ruhr-uni-bochum.de. An early version of the full paper can be downloaded from: https://www.boeckler.de/pdf/v_2018_10_26_bauermann.pdf.
- 2.
The average unemployment in the model is at 9.01% and its average standard deviation 2.0%. The government starts its intervention when unemployment exceeds 13.0% or, in other words, when unemployment exceeds mean unemployment by 2*SD.
- 3.
To determine the number of runs (i.e. 700 random seeds), I follow the concept of variance stability [10]. The variance of the variates settles to the mean variance, 700 runs. To ensure that this burn-in phase was passed when the government starts its policy, the policy shift starts at period 1000. The 95% confidence bands follow the standards in the literature [3].
- 4.
The baseline ratio of unemployment benefits to average wage, 50%, is, roughly, the average net replacement rate (NRR) in Germany in the early 2000s, which was taken from the NRR statistics [15]. The magnitude of the reduction was found by following the reduction of UB of long-term unemployed in Germany in the course of the labour market reforms in the 2000s. The reduction of this work is a bit milder compared to the mentioned reduction [4]. Due to the absence of a calibration criteria for search efforts, doubling the search efforts mimics a significant but still realistic increase.
- 5.
The short-time work scheme followed, roughly, the German short-time work in the aftermath of the recent financial crisis [1]. The firms could reduce hours worked and wage bill down to 45%.
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Bauermann, T. (2020). Times of Crises and Labour Market Reforms. In: Verhagen, H., Borit, M., Bravo, G., Wijermans, N. (eds) Advances in Social Simulation. Springer Proceedings in Complexity. Springer, Cham. https://doi.org/10.1007/978-3-030-34127-5_6
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