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Optimal Workfare in a Society of Workers and Non-Workers

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

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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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  1. Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers 968, Queen's University, Department of Economics. [Downloadable!]
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  2. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Blackwell Publishing, vol. 100(1), pages 113-41, March. [Downloadable!] (restricted)
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  3. Gerard J. van den Berg & Bas van der Klaauw & Jan C. van Ours, 1998. "Punitive Sanctions and the Transition Rate from Welfare to Work," Tinbergen Institute Discussion Papers 98-076/3, Tinbergen Institute. [Downloadable!]
  4. Berg, Gerard J. van den & Klaauw, Bas van der & Ours, Jan C. van, 1998. "Punitive sanctions and the transition rate from welfare to work," Serie Research Memoranda 0033, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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  5. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March. [Downloadable!] (restricted)
  6. Paul Beaudry & Charles Blackorby, 1998. "Taxes and Employment Subsidies in Optimal Redistribution Programs," NBER Working Papers 6355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Edi Karni, 1999. "Optimal Unemployment Insurance: A Survey," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 442-465, October.
  8. W. Henry Chiu & Edi Karni, 1998. "Endogenous Adverse Selection and Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 806-827, August. [Downloadable!] (restricted)
  9. Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-22, October.
  10. Besley, Timothy & Coate, Stephen, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Blackwell Publishing, vol. 62(2), pages 187-221, April. [Downloadable!] (restricted)
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  1. Peter Fredriksson & Bertil Holmlund, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. Peter Fredriksson & Bertil Holmlund, 2003. "Optimal Unemployment Insurance Design: Time Limits, Monitoring, or Workfare?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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