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Choosing To Become A ‘Lost Cause’:The Perverse Effects Of Benefit Preconditions

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Author Info

  • Lisa Farrell
  • Paul Frijters

Abstract

This paper argues that preconditions for welfare benefit entitlements based on labour market prospects can be counterproductive when they create an incentive for individuals to abstain from any investment earlier in life that could improve future prospects. Benefit entitlements based partly on investments made prior to labour market entry are then Pareto-improving.

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File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-03/886.pdf
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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 886.

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Length: 30 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:mlb:wpaper:886

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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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Keywords: Benefits; job search; irreversible investments;

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  1. Galor, Oded & Lach, Saul, 1990. "Search Unemployment in an Overlapping-Generations Setting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 409-19, May.
  2. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  3. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  4. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," NBER Working Papers 6038, National Bureau of Economic Research, Inc.
  5. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  6. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  7. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Clarke, G.R.G. & Strauss, R.P., 1994. "Children as Income Produting Assets: The Case of Teen Illegitimacy and Government Transfers," RCER Working Papers 389, University of Rochester - Center for Economic Research (RCER).
  9. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  10. Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 333-43, July.
  11. Mark R. Rosenzweig, 1999. "Welfare, Marital Prospects, and Nonmarital Childbearing," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S3-S32, December.
  12. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  13. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  14. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-40, December.
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Cited by:
  1. Paul Frijters & Robert Gregory, 2006. "From Golden Age to Golden Age: Australia's 'Great Leap Forward'?," The Economic Record, The Economic Society of Australia, vol. 82(257), pages 207-224, 06.

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