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Unemployment Vouchers versus Low-Wage Subsidies

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Author Info

  • Orszag, Mike

    ()
    (Towers Watson)

  • Snower, Dennis J.

    ()
    (Kiel Institute for the World Economy)

Abstract

The paper examines the relative effectiveness of two policy proposals in reducing unemployment and working poverty: unemployment vouchers and low-wage subsidies. The unemployment vouchers are targeted exclusively at the unemployed (especially the longterm unemployed) and are provided only for a limited period of time. The low-wage subsidies, on the other hand, are granted to all low-wage earners regardless of their employment history and are of limitless duration. Our analysis indicates that the relative effectiveness of the two policies depends on workers’ prospective wage growth. The more upwardly mobile workers are (i.e. the more their wages rise with employment duration), the more effective will unemployment vouchers be relative to low-wage subsidies. Conversely, the greater the danger that workers come to be trapped in dead-end jobs with flat wage profiles, the more effective will low-wage subsidies be relative to unemployment vouchers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 537.

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Length: 47 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:iza:izadps:dp537

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Related research

Keywords: unemployment; poverty; wages; employment; vouchers; subsidies; inequality;

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Cited by:
  1. Alessio J. G. Brown, & Christian Merkl & Dennis J. Snower, 2006. "Comparing the Effectiveness of Employment Subsidies," Kiel Working Papers 1302, Kiel Institute for the World Economy.
  2. Berthold, Norbert & von Berchem, Sascha, 2005. "Hartz IV: eine vertane Chance nutzen," Wirtschaftswissenschaftliche Beiträge 79, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  3. Hans H. Glismann & Klaus Schrader, 2001. "Optionen einer effizienten Gestaltung der Arbeitslosenversicherung," Kiel Working Papers 1052, Kiel Institute for the World Economy.
  4. Frank Oskamp & Dennis J. Snower, 2007. "Interactions between Employment and Training Policies," Kiel Working Papers 1389, Kiel Institute for the World Economy.
  5. Hans H. Glismann & Klaus Schrader, 2000. "Zur Reform der deutschen Arbeitslosenversicherung � Probleme und Lösungsansätze in der deutschen Literatur," Kiel Working Papers 995, Kiel Institute for the World Economy.

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