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Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?

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  • Jahn, Elke J.

    ()
    (Institute for Employment Research (IAB), Nuremberg)

  • Wagner, Thomas

    ()
    (University of Applied Sciences Nuremberg)

Abstract

To reduce unemployment targeted hiring subsidies for long-term unemployed are often recommended. To explore their effect on employment and wages, we devise a model with two types of unemployed and two methods of search, a public employment service (PES) and random search. The eligibility of a new match depends on the applicant's unemployment duration and on the method of search. The hiring subsidy raises job destruction and extends contrary to Mortensen-Pissarides (1999, 2003) the duration of a job search, so that equilibrium unemployment increases. Like the subsidy, organizational reforms, which advance the search effectiveness of the PES, crowd out the active jobseekers and reduce overall employment as well as social welfare. Nevertheless, reforms are a visible success for the PES and its target group, as they significantly increase the service's placement rate and lower the duration of a job search via the PES.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3768.

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Length: 43 pages
Date of creation: Oct 2008
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Handle: RePEc:iza:izadps:dp3768

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Keywords: matching model; hiring subsidy; endogenous separation rate; active labour market policy; PES; random search;

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  1. Cardullo, Gabriele & Van der Linden, Bruno, 2006. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," IZA Discussion Papers 2073, Institute for the Study of Labor (IZA).
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  7. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  8. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  9. Forslund, Anders & Johansson, Kerstin, 2007. "Random and stock-flow models of labour market matching - Swedish evidence," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2007:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  10. Alessio J. G. Brown, & Christian Merkl & Dennis J. Snower, 2006. "Comparing the Effectiveness of Employment Subsidies," Kiel Working Papers, Kiel Institute for the World Economy 1302, Kiel Institute for the World Economy.
  11. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2122, London School of Economics and Political Science, LSE Library.
  12. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 89(356), pages 818-33, December.
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