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Incapacity benefits and employment policy

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  • Orszag, J. Michael
  • Snower, Dennis J.

Abstract

The paper explores the employment implications of allowing people the opportunity of using a portion of their incapacity benefits to provide employment vouchers for employers that hire them. The analysis indicates that introducing this policy could increase employment, raise the incomes of incapacity benefit recipients, and reduce employers’ labor costs. The analysis explicitly derives the optimal voucher, i.e. the voucher that maximizes employment at no extra budgetary cost. This voucher is shown to depend on the size of incapacity benefits, the separation rate in the absence of the voucher, and the degree of displacement; but it does not depend on the hiring rate. Numerical calculations show the optimal voucher to be large by the standards of many existing employment subsidies.
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Suggested Citation

  • Orszag, J. Michael & Snower, Dennis J., 2002. "Incapacity benefits and employment policy," Labour Economics, Elsevier, vol. 9(5), pages 631-641, November.
    • Handle: RePEc:eee:labeco:v:9:y:2002:i:5:p:631-641
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    References listed on IDEAS

    as
    1. Orszag J. Michael & Snower Dennis J., 2000. "The Effectiveness of Employment Vouchers: A Simple Approach," German Economic Review, De Gruyter, vol. 1(4), pages 385-419, December.
    2. Orszag, Jonathan Michael & Snower, Dennis J., 2000. "The effectiveness of employment vouchers: a simple approach," Open Access Publications from Kiel Institute for the World Economy 2519, Kiel Institute for the World Economy (IfW Kiel).
    3. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
    4. 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.
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    Cited by:

    1. Kirsten Sehnbruch & Rafael Carranza Navarrete & Dante Contreras Guajardo, 2022. "Unemployment Insurance in Transition and Developing Countries: Moral Hazard vs. Liquidity Constraints in Chile," Journal of Development Studies, Taylor & Francis Journals, vol. 58(10), pages 2089-2109, October.
    2. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    3. Sehnbruch, Kirsten & Carranza, Rafael & Contreras, Dante, 2020. "Unemployment insurance in Chile: lessons from a high inequality developing country," LSE Research Online Documents on Economics 107824, London School of Economics and Political Science, LSE Library.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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