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Optimal Workfare in Unemployment Insurance


Author Info

  • Claus Thustrup Hansen

    (Institute of Economics, University of Copenhagen)

  • Torben Tranæs

    (Institute of Economics, University of Copenhagen)


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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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 99-06.

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Length: 23 pages
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:kud:kuiedp:9906

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Keywords: workfare; unemployment insurance;

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Cited by:
  1. Márcia Ferreira de Oliveira & Cesaltina Pacheco Pires & Paulo Côrte-Real, 2013. "Combating fraud in Poverty-Alleviation Programs - should we use monitoring, workfare or both?," CEFAGE-UE Working Papers 2013_08, University of Evora, CEFAGE-UE (Portugal).


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