Department of Social Affairs and Employment Directorate ASEA Klaas Beniers kbeniers@minszw.nl

Question: The socio-economic position of citizens in society (measured by income, status) is to a large extent driven by luck and misfortune. Who agrees?

Luck and misfortune determines position Source: World Values Survey

Aim of the Department Increase employment rates and improve the functioning of the labour market. Take care of the social security system. Take care of a balanced distribution of income. Establish good relations between unions, employers, and other interest groups. Protect employees against risk at work.

Aim and position of ASEA The aim of ASEA is to think about the future of the welfare state and the functioning of the economy. To analyse, criticize and provide an economic view on policy proposals. For this purpose, the directorate is deliberately put on a distance of actual legislative work. Small (25 people), all economists, some did a Ph.D.

Questions we answer are: Should the welfare state adjust as a reaction to recent trends? Do these adjustments match with the preferences of society? Are Pareto improvements possible within the current system? How do insights from the scientific literature translate into policy choices? How do different parts of the welfare state interact and relate?

What we do Inform the minister and bureaucrats about desirable policy proposals, macro economic conditions, the consequences of proposals for the distribution of income Negotiate with other departments. Educate non-economist. Investigate unsolved problems, cooperate with research institutes.

Trade offs in the welfare state 1) Equity versus efficiency Redistributive policies are an insurance against the risk of having a low ability. Should we care about the level of income or about the differences between income groups? Richard Layard: happiness depends on relative rather than absolute levels of income. Unemployment insurance schemes affects moral hazard problems

Trade offs in the welfare state 2) Solidarity versus the freedom to choose Redistribution is one motive for collective arrangements. Besides that adverse selection and information problem are a rationale for government intervention. However, risks and risk attitudes differ between citizens and moral hazards problems are severe. Are citizens rational and forward looking?

Trade offs in the welfare state 3) Discretion versus the equality of rights Central problem: Information asymmetry between the central government and local public officials. Discretion for public officials may create inequality between citizens. How to induce alignment of preferences between public officials and the central government?

Preferences of society Stable support for redistribution and a large welfare state. However, majority supports the claim that the welfare state should adjust. Sanctions and monitoring for unemployed are accepted and crucial for support. The Netherlands are a high trust society.

Most people can be trusted Source: World Values Survey

Reasons to adjust? Trends: Technological change Changing functioning of the economy has an impact on the flexibility of employers and employees (education system). Different role for employment protection? How to insure employees against the risk of unemployment. Polarization of the labour market (Autor, Manning). Consequences for labour market policies and for the distribution of income.

Reasons to adjust? Trends: Individualisation Less support for solidarity and collective arrangements? More private insurance schemes? Poverty is a bigger problem, many unemployed are single.

Reasons to adjust? Trends: Ageing Pressure for the government budget, health care expenditures increase rapidly. Scarcity on the labour market, need to work longer? Changing the pension entitlements? How can we ensure solidarity between and within generations.

Relation between number of employees and people receiving a pension.

Current project: Wage-productivity profiles for older workers High unemployment for older people. Possible reasons: relationship between wage and productivity, perception, financial benefits of retirement? Steep wage profiles may work as an incentive device (Lazear) but may create unemployment if jobs disappear. Are older workers really less productive in comparison with younger workers?

Example: financial aid to students. Current project: Saving accounts to enhance efficiency of redistribution A large part of redistribution is over the life cycle rather than between individuals Example: financial aid to students. Saving accounts are more efficient since they do not distort the decision to work (Bovenberg, Sorensen, Hansen). Moreover, saving accounts can alleviate moral hazard problems. Question is what kind of arrangements are really redistributive.

Current project: More efficient active labour market policies. Examine effectiveness of different instruments. Some programmes may have a strong lock-in effect. Towards a more efficient organizational structure. In the current system different public agencies are involved. Moreover, public agencies may have low incentives to perform well. Clear distinction between public and private tasks, take use of incentives.

Who can apply Of course, everybody… but in particular PhD students who: Are interested in working on the edge between science and policy making. Like to translate scientific results in a new view on the welfare state, to convince and communicate this to other bureaucrats. Like to work on both short-term and long-term projects. Like to work in a political environment.

What we offer Interesting political environment. The possibility to translate economic insights into actual policy proposals. Working on topics discussed in the public scene. Good working conditions. Lively and ambitious directorate.