· sees the cause of current unemployment in the system of taxation
· focuses on distributions
· discusses the distribution of wages in its relation to productivity and unemployment.
Table 2 tabulates the differences.
Table 2: Differences between current and possible policy
| Current policy | Possible policy | |
| low inflation & low deficit | accepts unemployment | full employment |
| cause of unemployment | technology, globalisation and labour market inflexibility | system of taxation |
| method | aggregates & averages | distributions |
| distribution of wages | income equality | productivity & unemployment |
The new analysis means that we get a different perspective on the existing models.
For example, a current argument in Holland on labour market inflexibilities is that the replacement rate is too low. There would be a so-called poverty trap. People in a benefit situation would have little incentives to accept a job offer, since they would earn hardly more. This is regarded as a supply issue, and since one cannot raise wages (which would increase unemployment), the only solution seems to be the reduction of benefits. This was actually the statement of the Dutch Minister of Social Affairs at the presentation of the Dutch National Budget in September 1999. Even the small Socialist Party (SP) accepts this view, vide its January 2000 internet site. The Minister and the oppostion party however are misguided and badly advised. In the proper analysis the problem is crucially different. If there would be sufficient jobs then there already are regulations that people can be fined for not accepting a job offer. This fine creates an incentive of 30% in a warning stage and eventually 100% by full withdrawal of the benefit. So the problem is rather that there are insufficient job offers - with sounds more like a demand problem. By manipulating taxes, it is possible to reduce gross wage costs - and increase demand - while still allowing for a decent net income.
Another point of attention is the word ‘unemployment’. Holland in 1999 features an ‘official unemployment rate’ of about 3.2 %. It seems as if unemployment is no problem for Holland. As an economist I however cannot accept the sausage that the Statistical Office (in this case the Dutch CPB and CBS) here present. (1) Dutch ‘official disability’ is about 10% of the true labour force, (2) people older than 55 years are often excluded from the ‘official labour force’ too, (3) many people work part-time since they cannot find a full-time job, (4) many women will not work outdoors since childcare is too expensive because of the wrong wages, (5) etcetera. Many economists classify these issues under the denominator of ‘participation’, and then agree that Holland has a participation problem. However, in proper economic terms it is unemployment: people who would want jobs but cannot find them. I urge the statisticians to remain servient to economic science, as they claim they are, rather than servient to politics and disinformation.