Optimal Workfare in a Society of Workers and Non-Workers

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Optimal Workfare in a Society of Workers and Non-Workers

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Claus T. Hansen (University of Copenhagen)
Torben Tranaes (University of Copenhagen)

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Torben Tranaes

Abstract

Most workers are only partially insured against unemployment. One reason is that high unemployment compensation creates a free rider problem when monitoring of job search behavior is limited; people who do not seek employment (non-workers) may nevertheless collect unemployment compensation. We show that unproductive workfare for unemployed workers may improve unemployment insurance if workers and non-workers value leisure differently. If they differ only with respect to productivity workfare has to be based on a productivity related task requirement (task workfare); a simple time requirement (time workfare) is not enough. Task workfare is simply a better screening device, also implying that task workfare Pareto dominates time workfare. Finally, we show that the scope for using workfare is larger the smaller are the transfers from workers to non-workers.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0758.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0758

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