Labour market effects of flexicurity from a regional perspective

One of the main questions for politicians is how to introduce more flexibility in the labour market while still providing employees with ample social security. The concept of flexicurity has sprung to attention through its success in Denmark. This paper explores whether the Danish model can also be successful in other European countries. A simultaneous equations model is constructed and estimated using regional data, which is an extension of the Blanchard-Katz model developed in 1992. It is found that a European country such as the Netherlands can permanently lower its unemployment rate and increase its participation and employment growth rates at the regional level, by 1.47, 2.08 and 1.05 percentage points respectively, if it copies the Danish model.