Department of Social Affairs and Employment Directorate ASEA

1. Department of Social Affairs and EmploymentDirectorate ASEA Klaas Beniers kbeniers@minszw.nl

2. 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?

3. Luck and misfortune determines position Source: World Values Survey

4. 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.

5. 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.

6. 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?

7. 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.

8. 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

9. 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?

10. 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?

11. 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.

12. Most people can be trusted Source: World Values Survey

13. 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.

14. 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.

15. 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.

16. Relation between number of employees and people receiving a pension.

17. 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?

18. 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.

19. 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.

20. 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.

21. 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.