Labour market economics has been gaining more and more attention over the years, due to increasing job insecurity. There is a growing demand for the improvement of labour market models. Labour market models are representations of the labour market system used to provide insight to the effects of government policy. Current labour market models have been
criticised due to their complexity. Moreover, the models do not provide adequate insight on the relation between the model’s assumptions and their outcome.

This thesis applies Economic Engineering to the labour market system. The system is modelled using Economic-Engineering analogs and the government is modelled as a controller. The Economic-Engineering methodology adds understanding to the labour market system itself and the performance of the government’s policy.

This thesis presents both a micro- and macro-scale interpretation of the labour market. It is shown how system characteristics determine the system’s response to market shocks. Frequency domain analysis is used to connect the dynamical behaviour on both scales to the system’s response. This gives increased insight in the labour market’s system dynamics.

The government is treated as a controller. A PID- and a robust H_infinity-controller are designed to provide policy advice. The control objective is to minimise the effects of international disturbances on Dutch unemployment rates. The control input of both controllers is in compliance with current economic theory. It is shown in what sense the PID controller differs from the H_infinity-controller and under which conditions which controller is advisable. This depends on knowledge on the type of uncertainty and disturbances acting on the system.