Optimal regional labor market policies

Philip Jung, Philipp Korfmann and Edgar Preugschat

European Economic Review, 2023, vol. 152, issue C

Abstract: We document large and persistent spatial dispersion in unemployment rates, vacancies, labor market tightness, labor market flows, and wages for Germany on a granular regional level. We find that both differences in inflows into and in outflows from unemployment are important for accounting for the regional dispersion in unemployment rates. Within a search- and matching model with risk-averse agents, moral hazard, endogenous separations and free mobility we show that an optimal policy response to labor market dispersion requires a place-based tax and unemployment insurance system together with place-based policies conditioning on labor market flows. We allow regions to differ along multiple dimensions and characterize the trade-offs between insurance, regional redistribution and efficiency quantitatively. We find that for Germany a move towards an optimal place-based tax system that explicitly conditions on regional characteristics could lead to sizeable welfare and employment gains.

Keywords: Regional labor markets; Regional mobility; Optimal policy (search for similar items in EconPapers)
JEL-codes: E24 E60 H21 H23 J61 J63 J65 J68 R13 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292122001982

DOI: 10.1016/j.euroecorev.2022.104318

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