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Nordic Economic Policy Review

Labour Market Consequences of the Economic Crisis

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The Nordic Economic Policy Review is published by the Nordic Council of Ministers and addresses policy issues in a way that is useful for informed non-specialists as well as for professional economists. All articles are commissioned from leading professional economists and are subject to peer review prior to publication. The Nordic Economic Policy Review is published twice a year. The journal is distributed free of charge to members of the Nordic economic associations. The easiest way of subscribing to the NEPR is therefore to become a member of one of these associations, i.e., Denmark: Nationaløkonomisk Forening Finland: Taloustieteellinen Yhdistys Norway: Samfunnsøkonomene Sweden: Nationalekonomiska Föreningen For institutional subscriptions, please contact [email protected] Content: Introduction - Lars Calmfors and Bertil Holmlund Youth unemployment in Europe and the United States: David N.F. Bell and David G. Blanchflower Comment by Oskar Nordström Skans Employment consequences of employment protection legislation - Per Skedinger Comment by Assar Lindbeck Business cycle contingent unemployment insurance - Torben M. Andersen and Michael Svarer Comment by Erik Höglin Is short-time work a good method to keep unemployment down? - Pierre Cahuc and Stéphane Carcillo Comment by Ann-Sofie Kolm What active labor market policy works in a recession? - Anders Forslund, Peter Fredriksson and Johan Vikström Comment by Clas Olsson Regular education as a tool of counter-cyclical employment policy - Christopher Pissarides Comment by Björn Öckert

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Regular education as a tool of counter-cyclical employment policy

This paper considers education as a counter-cyclical policy tool. In recession, unemployment goes up and there is an increase in private demand for education. This increase is in response to the fall in the cost of education, measured by the foregone income while studying, and by the uncertainties that face new entrants to the labour market in recession. The government should support the increase in this demand because the social costs of education, measured by the foregone output of the students, also fall. But protection against risk when workers are risk averse is not a social return to education. The government should back up the support of an increase in places of education with unemployment insurance, to protect against risk. Standards might fall when the number of educational places increases in recession. This should be tolerated because recession is costly for society and higher education should share some of these costs.

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