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The Effectiveness of Employment Vouchers: A Simple Approach

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  • J. Michael Orszag
  • Dennis J. Shower

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.

Suggested Citation

  • J. Michael Orszag & Dennis J. Shower, 2000. "The Effectiveness of Employment Vouchers: A Simple Approach," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 385-419, November.
    • Handle: RePEc:bla:germec:v:1:y:2000:i:4:p:385-419
    DOI: 10.1111/1468-0475.00019
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," Kyklos, Wiley Blackwell, vol. 59(4), pages 557-577, November.
    4. 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.
    5. Berthold, Norbert & von Berchem, Sascha, 2003. "Die Sozialhilfe zwischen Effizienz und Gerechtigkeit: wie kann der Spagat gelingen?," Discussion Paper Series 62, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    6. Orszag, J. Michael & Snower, Dennis J., 2002. "Incapacity benefits and employment policy," Labour Economics, Elsevier, vol. 9(5), pages 631-641, November.
    7. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Discussion Paper Series 54, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    8. 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, May.

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