## Structural Unemployment in Luxembourg: Bad Luck or Rational Choice?

_IMF Working Papers, November 8, 2019_

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## Bibliographic details
- Authors: William Gbohoui
- Published: November 8, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513515427.001

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### Summary findings
- Combines micro and macro approaches to identify drivers of (un)employment and inactivity in Luxembourg.
- The young, low-skilled, and non-EU migrants are identified as the most vulnerable groups in the labor market.
- Skills mismatches and work disincentives embedded in the tax-benefit system are factors explaining structural unemployment.
- High unemployment of young and low-skilled workers reflects substantial unemployment traps.
- Disincentives for second earners contribute to lower labor market participation of women.
- The generosity of the pension system contributes to lower labor market participation of seniors.
- Further reduction of structural unemployment requires better integration of vulnerable groups into the labor market and improved targeting of benefits to make work more rewarding.

### Vulnerable groups and labor-market outcomes
- Young workers: high unemployment reflecting substantial unemployment traps.
- Low-skilled workers: high unemployment reflecting substantial unemployment traps.
- Non-EU migrants: identified as among the most vulnerable groups.
- Women: lower labor market participation linked to disincentives for second earners in the tax-benefit system.
- Seniors: lower labor market participation linked to the generosity of the pension system.

### Drivers and mechanisms
- Skills mismatches: cited as a key driver of structural unemployment in Luxembourg.
- Tax-benefit system work disincentives: identified as contributing to structural unemployment and low participation for specific groups.
- Unemployment traps: particularly substantial for the young and low-skilled, reinforcing persistent unemployment.

### Policy recommendations
- Better integration of vulnerable groups (young, low-skilled, non-EU migrants) into the labor market.
- Improved targeting of benefits to make work more rewarding and reduce work disincentives.
- Address disincentives for second earners to raise female labor market participation.
- Review pension generosity implications for senior labor market participation.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2019/11/08/structural-unemployment-in-luxembourg-bad-luck-or-rational-choice-48705_