Economic Notebook about Labor Market

Many developed countries have to deal with low female labor market participation. Within (OECD) countries, only 61 % of women of working age actively participated in the labor market in 2008, whereas the ratio is 80%for men. This gap is particularly alarming as women recently tend to be higher educated on average, with better school degrees and higher shares of university graduates. Hence, activating this untapped skilled labor resource is a key issue in the current policy debate. Supporting self-employment among unemployed women might be more promising in this regard, given that women start their own business which gives them more independence and flexibility in allocating their time to work and family. Therefore, start-up programs are likely to ease the integration of unemployed women without a simultaneous reduction in fertility. While the existing evidence on start-up programs confirms the promising expectations on employment prospects for unemployed women, long-term evidence is missing (due to data restrictions), and the impact on fertility is completely unexamined. This paper investigates how labor market policies affect the unemployment rates through its two defining factors, the duration of unemployment spells and job destruction rates. To this aim, we interpret the equilibrium conditions for unemployment by search theory as an iso-unemployment curve (IUC). According to search theory, the steady-state unemployment rate can be broken down into the product of the number of workers that leave employment as percentage of the labor force and the expected duration of unemployment. it is possible to interpret this equilibrium relationship as an IUC, reflecting the different combinations of inflows and durations compatible with the same unemployment rate level. Governments in many advanced economies, especially in Europe, currently face the challenge of fiscal consolidation with the need to sustain potential growth. Against this backdrop, the determination of public sector wages has drawn renewed interest in view of its implications for public finances and potential consequences for the efficiency of the public sector and possibly of the whole economy. By contrast, the government might be reluctant to award higher wages to high-skilled workers, as the public opinion might not want to see public servants earning more than comparably trained and experienced private sector counterparts. From an economic perspective, if the government rewards its employees with higher remuneration than in the private sector, prospective workers may decide to queue for these relatively high-paying jobs, with private sector employment crowded out unless private sector wages increase.