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

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  • 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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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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Related research

Keywords: Benefits; job search; irreversible investments;

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References

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  1. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  2. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  3. 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.
  4. 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.
  5. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-91, April.
  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. 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.
  10. Coate, S. & Loury, G.C., 1992. "Will Affirmative Action Policies Eliminate Negative Stereotypes?," Papers 3, Boston University - Department of Economics.
  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. 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.
  13. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  14. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
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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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