Active and Passive Policies Against Poverty with Decreasing Employability
AbstractIn this paper we propose a non-equilibrium model in order to explain the search behavior of unemployed workers. This modeling strategy, framed in a rational choice paradigm, allows us to investigate the effects of negative duration dependence in the out-of-unemployment hazard rate, accounting for a decrease in employability as the unemployment spell lengthens. We show that individuals react to an expected reduction in their search effectiveness by increasing their search efforts. We then analyze active and passive labor market policies, consisting in training programs and income support schemes. We show that it is optimal for the government to include among the eligibility criteria for subsidized training a minimum length of the unemployment spell. However, it is optimal to recruit workers before they become discouraged and stop searching. We also show that for a broad range of the parameters the optimal income support scheme takes the form of unemployment benefits granted for a limited amount of time starting from the beginning of the unemployment spell, coupled with social assistance for long-term unemployed with very limited residual employability.
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Bibliographic InfoPaper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 49.
Length: 21 pages
Date of creation: 2006
Date of revision:
Other versions of this item:
- Richiardi Matteo & Contini Dalit, 2008. "Active and Passive Policies Against Poverty with Decreasing Employability," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 245-272.
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-28 (All new papers)
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