MODULA: En AGL-model med duale arbejdsmarkeder

Abstract:

MODULA (MOdel with DUal LAbour markets) is an applied general equilibrium model for Denmark aimed at analyses of labour market policies and taxation. This working paper documents the model and its calibration. In addition the effects of introducing an earned income tax credit and reducing unemployment benefits are analysed. The model is static and describes a stationary equilibrium, corresponding roughly to the 1994 Danish economy. Unlike most other applied models of Denmark, MODULA contains a disaggregated labour market with six segments. Each segment is characterized by its degree of competition and the educational level of the employed persons. In the two labour markets, private and public, for persons with a higher education competition is assumed to be imperfect and wages set by a wage function, which is derived from, for example, efficiency wage and matching models. For unskilled labour and persons with shorter educations one segment of the labour market, the primary, has imperfect competition and, therefore, a wage above the market clearing level. Those not able to find employment in the primary labour market can choose between employment in the secondary labour market, which is assumed to be perfectly competitive, and unemployment in which case they receive unemployment benefits. The choice between the two states depends on relative utility.