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The Effectiveness of Employment Vouchers: A Simple Approach

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  • J. Michael Orszag
  • Dennis J. Shower
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    Abstract

    This paper explores the optimal design of subsidies for hiring unemployed workers ('employment vouchers' for short) in the context of a simple dynamic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design. We calibrate the model and evaluate the effectiveness of employment vouchers in reducing unemployment for a wide range of feasible parameters. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2000.

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    Bibliographic Info

    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 1 (2000)
    Issue (Month): 4 (November)
    Pages: 385-419

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    Handle: RePEc:bla:germec:v:1:y:2000:i:4:p:385-419

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    References

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    1. Stephen A. Woodbury & Robert G. Spiegelman, . "Bonuses to Workers and Employers to Reduce unemployment: Randomized Trials in Illinois," Upjohn Working Papers and Journal Articles sawrgs1987, W.E. Upjohn Institute for Employment Research.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
    3. Hian Hoon, 1996. "Payroll taxes and VAT in a labor-turnover model of the ‘natural rate’," International Tax and Public Finance, Springer, vol. 3(3), pages 369-383, July.
    4. Alan B. Krueger, 1988. "The determinants of queues for federal jobs," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(4), pages 567-581, July.
    5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
    6. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
    7. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
    8. Burgess, Simon & Pacelli, Lia & Rees, Hedley, 1997. "Job Tenure and Labour Market Regulation: A Comparison of Britain and Italy using Micro Data," CEPR Discussion Papers 1712, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Brown, Alessio J.G. & Orszag, J. Michael & Snower, Dennis J., 2008. "Unemployment accounts and employment incentives," European Journal of Political Economy, Elsevier, vol. 24(3), pages 587-604, September.
    2. Orszag, Mike & Snower, Dennis J., 2002. "Incapacity Benefits and Employment Policy," IZA Discussion Papers 529, Institute for the Study of Labor (IZA).
    3. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2011. "Comparing the effectiveness of employment subsidies," Labour Economics, Elsevier, vol. 18(2), pages 168-179, April.
    4. Adam, Antonis & Moutos, Thomas, 2011. "A politico-economic analysis of minimum wages and wage subsidies," Economics Letters, Elsevier, vol. 110(3), pages 171-173, March.
    5. Berthold, Norbert & von Berchem, Sascha, 2003. "Die Sozialhilfe zwischen Effizienz und Gerechtigkeit: wie kann der Spagat gelingen?," Wirtschaftswissenschaftliche Beiträge 62, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
    6. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Wirtschaftswissenschaftliche Beiträge 54, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
    7. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," CESifo Working Paper Series 1707, CESifo Group Munich.
    8. Frank Oskamp & Dennis J. Snower, 2007. "Interactions between Employment and Training Policies," Kiel Working Papers 1389, Kiel Institute for the World Economy.
    9. Michael Lechner, 2002. "Eine wirkungsorientierte aktive Arbeitsmarktpolitik in Deutschland und der Schweiz: Eine Vision - zwei Realitäten," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 3(2), pages 159-174, 05.

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