Comparing the effectiveness of employment subsidies

Brown, Alessio J. G., Merkl, Christian and Snower, Dennis (2011) Comparing the effectiveness of employment subsidies Labour Economics, 18 (2). pp. 168-179. DOI 10.1016/j.labeco.2010.11.001.

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This paper examines the implications of different types of employment subsidies for employment, welfare, and inequality. It investigates how these effects depend on what target groups the subsidies address. Our analysis focuses on policies that are "approximately welfare efficient" (AWE), i.e. policies that (a) improve employment and welfare, (b) do not raise earnings inequality and (c) are self-financing. We construct a microfounded, dynamic model of hiring and separations and calibrate it with German data. The calibration shows that hiring vouchers can be AWE, while low-wage subsidies are not AWE. Furthermore, hiring vouchers targeted at the long-term unemployed are more effective than those targeted at low-ability workers.

Document Type: Article
Keywords: Low wage subsidy Hiring voucher Targeting Employment Unemployment Duration Self-financing
Research affiliation: Kiel University
Refereed: Yes
DOI etc.: 10.1016/j.labeco.2010.11.001
ISSN: 0927-5371
Date Deposited: 01 Nov 2012 05:05
Last Modified: 28 Dec 2012 09:28

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