Fighting unemployment without worsening povety: Basic income versus reductions of social security contributions
Van der Linden, Bruno
Reductions of social security contributions (RSSC) and a basic income (BI) (or the related Negative Income Tax) are considered in a dynamic general equilibrium framework with imperfect competition on the labour market (the Ôwage-setting/price-settingÕ model). The cases with homogeneous and heterogeneous workers are considered. It turns out that both policies have a long-run effect on the unemployment rate if they are appropriately designed. With two types of skills, this proposition holds if relative wages are rigid and if the supply of skills is not perfectly elastic. A welfare analysis shows that introducing appropriately framed RSSC or BI can be a Pareto improvement.
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