On the design of labor market programs as stabilization policies

Euiyoung Jung (1, 2)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques

This paper analyzes the optimal cyclical behavior of labor market policies in an economy with asset and labor market frictions. The policies of interest include unemployment insurance (UI) and employment protection (EP). In addition to their supply-side effects, labor market policies affect the aggregate demand via earning risk and redistribution channels. Under bilateral wage bargaining, I find that procyclical UI and countercyclical EP deliver superior welfare outcomes through stabilization via both supply and demand channels.

Mots clés: Labor market policy; Incomplete markets; Unemployment; Uncertainty; New keynesian

Domaines: Economies et finances

Euiyoung Jung. On the design of labor market programs as stabilization policies. 2021. ⟨halshs-03243698⟩