How to Reduce Unemployment Without Creating Poverty

Lecture in the Master program MIEPP by Klaus Wälde

Tutorial by Alexey Cherepnev

The lecture offers insights into current research that studies how to reduce unemployment. It also looks at the literature that proposes mechanisms that allow reducing inequality. Combining the two should allow students to understand how unemployment can be reduced while at the same time guaranteeing a sufficiently high income from working and from unemployment benefits.

A detailed list of references is in the syllabus. The following outline provides links to the literature which is relevant for the course. 

The lecture is structured very differently from standard lectures. In fact, one could argue that it is more of a mutual exchange than a lecture. See here for some first idea. 


1 Introduction: Some facts on German, European and OECD unemployment

1.1 Unemployment in OECD countries

• Elsby, Hobijn and Sahin (2013) “"Unemployment Dynamics in the OECD”"

• Launov and Wälde (2012) Slides for "Estimating incentive and welfare effects of non-stationary unemployment benefits"

• OECD (2011) "Persistence of high unemployment: what risks? what policies?"

• Shimer (2012) “"Reassessing the ins and outs of unemployment”"

1.2 Unemployment in Germany 

• Launov and Wälde (2013) Slides for "Thumbscrews for agencies or for individuals? The Hartz Reforms in Germany" (see slide 8/24)

• Krebs and Scheffel (2013) "Macroeconomic Evaluation of Labor Market Reform in Germany"

• Reinberg and Hummel (2005) “"Höhere Bildung schützt auch in der Krise vor Arbeitslosigkeit”"

• Strasser and Wälde “"Unemployment stocks and ‡flows for Germany" ”

1.3 Wages and wage inequality

• Acemoglu and Autor (2011) "“Skills, Tasks, and Technologies: Implications for Employment and Earnings

• Autor, Katz and Kearney (2008) “"Trends in U.S. wage inequality: revising the revisionists"

• Dustmann, Ludsteck and Schönberg (2009) "“Revisiting the German wage structure

• Prasad (2004) “"The Unbearable Stability of the German Wage Structure: Evidence and Interpretation"

2 Theories of unemployment

2.1 Some background

• Akerlof (1982) "Labor Contracts as Partial Gift Exchange"

• Burda and Wyplosz (2012) Macroeconomics: A European Text

• Cahuc and Zylberberg (2004) Labor Economics

• Shapiro and Stiglitz (1984) "Equilibrium Unemployment as a Worker Discipline Device"

• Solow (1979) "Another possilbe Source of Wage Stickiness"

2.2 The search and matching approach to unemployment

• Moen (1997) “Competitive search equilibrium

• Hosios (1990) “On The Efficiency of Matching and Related Models of Search and Unemployment”

• Pissarides (1985) “Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages

• Rogerson, Shimer and Wright (2005) “Search-Theoretic Models of the Labor Market: A Survey

• Stigler (1961) “"The economics of information”"

• Wälde (2012) Applied Intertemporal Optimization

2.3 Wage distributions

• Burdett and Mortensen (1998) “Wage Differentials, Employer Size, and Unemployment

• Blundell and MaCurdy (1999) "Labour supply: a review of alternative approaches"

• Heckman (1993) "What has been learned about labor supply in the past twenty years?"

• Keane (2011) "Labor Supply and Taxes: A Survey"

• Huggett, Ventura and Yaron (2011) "Sources of Lifetime Inequality"

• Pencavel (1986) "Labor Supply of Men: A Survey"

• Eckstein and Lifshitz (2011) "Dynamic Female Labor Supply"

• Slemrod (1994) "Tax Progressivity and Income Inequality"


2.4 The role of trade unions

• Booth (1995) “The Economics of the Trade Union

• Donado and Wälde (2012) “How Trade Unions Increase Welfare



3 Economic policy

3.1 OECD countries during the great recession

• Bentolila, Cahuc, Dolado and Le Barbanchon (2012) “Two-tier labour markets in the Great Recession: France versus Spain

• Cherepnev and Wälde (2013) “Unemployment in OECD countries: Policy or Luck?”

3.2 Working time accounts

• Burda and Hunt (2011) “What Explains the German Labor Market Miracle in the Great Recession?

3.3 Hartz IV reforms in Germany

• Krause and Uhlig (2012) “Transitions in the German labor market: Structure and crisis

• Krebs and Scheffel (2013) “Macroeconomic Evaluation of Labor Market Reform in Germany

• Launov and Wälde (2013) “Estimating incentive and welfare effects of non-stationary unemployment benefits

• Launov and Wälde (2012) Slides for “Estimating incentive and welfare effects of non-stationary unemployment benefits

3.4 Hartz III vs Hartz IV - what helped more in reducing unemployment?

• Krebs and Scheffel (2013) “Macroeconomic Evaluation of Labor Market Reform in Germany

• Launov and Wälde (2013) “Thumbscrews for agencies or for individuals? How to reduce unemployment

3.5 Earned Income Tax Credit

• Chetty, Friedman and Saez (2013) "“Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings”"

• Golosov, Maziero and Menzio (forthcoming) “Taxation and Redistribution of Residual Income Inequality”

• Lingens and Wälde (2009) “Pareto-Improving Unemployment Policies

• Moffitt (2003) “The Negative Income Tax and the Evolution of U.S. Welfare Policy

• Saez (2002) “Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses

Sueddeutsche Zeitung (28.07.2014)