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Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach

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Author Info
Gabriele Cardullo
Bruno Van der Linden

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Abstract

The search-matching model is well suited for an equilibrium evaluation of labor market policies. When those policies are targeted on some groups, the usual juxtaposition of labor markets is however a shortcoming. There is a need for a setting where workers' productivity depends on employment levels in all markets. This paper provides such a theoretical setting. We first develop a streamlined model and then show that it can be extended to deal with interactions among various labor market and fiscal policies. Simulation results focus on the effects of employment susbsidies and in-work benefits and on their internactions with the profile of unemployment benefits and with active labor market programs.

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Publisher Info
Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 53 (2007)
Issue (Month): 4 ()
Pages: 375-404
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Handle: RePEc:aeq:aeqaeq:v53_y2007_i4_q4_p375-404

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Related research
Keywords: search-matching equilibrium reductions of social security contributions labor market programs

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
H2 - Public Economics - - Taxation, Subsidies, and Revenue

References listed on IDEAS
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    Other versions:
  2. Holmlund, Bertil & Linden, Johan, 1993. "Job matching, temporary public employment, and equilibrium unemployment," Journal of Public Economics, Elsevier, vol. 51(3), pages 329-343, July. [Downloadable!] (restricted)
    Other versions:
  3. Albrecht, James & Vroman, Susan, 2001. "Equilibrium Search with Time-Varying Unemployment Benefits," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  4. Bruno, VAN DER LINDEN, 2003. "Unemployment insurance and training in an equilibrium matching model with heterogeneous agents," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2003001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  6. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  7. David Coe & Dennis Snower, 1996. "Policy Complementarities: The Case for Fundamental Labor Market Reform," Archive Discussion Papers 9625, Birkbeck, Department of Economics.
    Other versions:
  8. Muriel Dejemeppe, 2005. "A Complete Decomposition of Unemployment Dynamics using Longitudinal Grouped Duration Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(1), pages 47-70, 02. [Downloadable!] (restricted)
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  11. Bat COCKX & Muriel DEJEMEPPE, 2002. "Do the Higher Educated Unemployed Crowd out the Lower Educated Ones in a Competition for Jobs ?," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2002020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  12. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February. [Downloadable!] (restricted)
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  13. repec:cup:macdyn:v:5:y:2002:i:05:p:742-747_03 is not listed on IDEAS
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  15. Heer, Burkhard, 2003. "Employment and Welfare Effects of a Two-Tier Unemployment Compensation System," International Tax and Public Finance, Springer, vol. 10(2), pages 147-68, March. [Downloadable!] (restricted)
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  16. Gabriele, CARDULLO, 2006. "Complementarities and substitutabilities in matching models," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2006001, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  18. Machin, Stephen & Manning, Alan, 1999. "The causes and consequences of longterm unemployment in Europe," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 47, pages 3085-3139 Elsevier. [Downloadable!] (restricted)
    Other versions:
  19. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April. [Downloadable!] (restricted)
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  22. Mortensen, Dale T & Pissarides, Christopher, 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers 2989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  23. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January. [Downloadable!] (restricted)
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  25. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July. [Downloadable!] (restricted)
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  27. Davidson, Carl & Woodbury, Stephen A, 1993. "The Displacement Effect of Reemployment Bonus Programs," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 575-605, October. [Downloadable!] (restricted)
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  28. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Blackwell Publishing, vol. 3(4), pages 415-430, November. [Downloadable!] (restricted)
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  29. Masters, Adrian, 2000. "Retraining the Unemployed in a Model of Equilibrium Employment," Bulletin of Economic Research, Blackwell Publishing, vol. 52(4), pages 323-40, October.
  30. Albrecht, James & van den Berg, Gerard J. & Vroman, Susan, 2005. "The Knowledge Lift: The Swedish Adult Education Program That Aimed to Eliminate Low Worker Skill Levels," IZA Discussion Papers 1503, Institute for the Study of Labor (IZA). [Downloadable!]
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  31. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October. [Downloadable!] (restricted)
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  33. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alessio J. G. Brown & Christian Merkl & Dennis J. Snower, 2007. "Comparing the Effectiveness of Employment Subsidies," IZA Discussion Papers 2835, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Pascal Belan & Martine Carré & Stéphane Gregoir, 2007. "Subsidizing low-skilled jobs in a dual labor market," THEMA Working Papers 2007-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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