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Active and Passive Policies Against Poverty with Decreasing Employability

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  • Dalit Contini
  • Matteo Richiardi

Abstract

In 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 Info

Paper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 49.

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Length: 21 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:cca:wplabo:49

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  1. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
  2. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
  3. Fortin, Bernard & Lacroix, Guy & Drolet, Simon, 2004. "Welfare benefits and the duration of welfare spells: evidence from a natural experiment in Canada," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1495-1520, July.
  4. Robert A. Moffitt, 2003. "The Temporary Assistance for Needy Families Program," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 291-364 National Bureau of Economic Research, Inc.
  5. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  6. John F. Ermisch & Robert E. Wright, 1991. "Welfare Benefits and Lone Parents' Employment in Great Britain," Journal of Human Resources, University of Wisconsin Press, vol. 26(3), pages 424-456.
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Cited by:
  1. Contini, Dalit & Richiardi, Matteo G., 2012. "Reconsidering the effect of welfare stigma on unemployment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 229-244.

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