Globalization has entered a new stage, with new and varying constellations of winners and losers and thus, calls for a new policy paradigm. In contrast to the traditional way of thinking - the welfare state redistributes purchasing power to the disadvantaged to support them in the event of adverse shocks - now workers must be made more adaptable and be encouraged to stabilize themselves if hurt from globalization. This dissertation examines several labour market policies with various incentive models of the labour market, which explain the microeconomic decisions relevant to the transitions in the labour market in terms of the incentives that economic agents face. To fulfil its new role the following three reform policies for the welfare state are analysed: Unemployment accounts, employment subsidies and flexicurity. Finally, a new modelling strategy of two-sided search with frictions and heterogeneities, which is able to account for empirical stylized facts, is proposed for future policy analysis and prediction.