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In-work benefits and unemployment

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  • Kolm, Ann-Sofie
  • Tonin, Mirco

Abstract

In-work benefits are becoming an increasingly relevant labour market policy, gradually expanding in scope and geographical coverage. This paper investigates the equilibrium impact of in-work benefits and contrasts it with the traditional partial equilibrium analysis. We find under which conditions accounting for equilibrium wage adjustments amplifies the impact of in-work benefits on search intensity, participation, employment, and unemployment, compared to a framework in which wages are fixed. We also account for the financing of these benefits and determine the level of benefits necessary to achieve efficiency in a labour market characterized by search externalities. Keywords; in-work benefits, search, labour force participation, wage adjustment

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 80217.

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Date of creation: 01 Mar 2010
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Handle: RePEc:stn:sotoec:80217

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  1. Boone, Jan & Bovenberg, Lans, 2004. "The optimal taxation of unskilled labor with job search and social assistance," Journal of Public Economics, Elsevier, Elsevier, vol. 88(11), pages 2227-2258, September.
  2. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4324, C.E.P.R. Discussion Papers.
  3. Lise, Jeremy & Seitz, Shannon & Smith, Jeffrey A., 2003. "Equilibrium Policy Experiments and the Evaluation of Social Programs," IZA Discussion Papers 758, Institute for the Study of Labor (IZA).
  4. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
  5. Jesse Rothstein, 2008. "The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1049, Princeton University, Department of Economics, Center for Economic Policy Studies..
  6. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations With Staggered Nash Wage Bargaining," NBER Working Papers 12498, National Bureau of Economic Research, Inc.
  7. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
  8. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers, Centre for Economic Performance, LSE dp0361, Centre for Economic Performance, LSE.
  9. 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.
  10. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers, Uppsala - Working Paper Series 1995-15, Uppsala - Working Paper Series.
  11. Bruce D. Meyer & Dan T. Rosenbaum, 1999. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," NBER Working Papers 7363, National Bureau of Economic Research, Inc.
  12. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
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Cited by:
  1. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "An Evaluation of the Swedish Earned Income Tax Credit," Working Paper Series, Research Institute of Industrial Economics 901, Research Institute of Industrial Economics.
  2. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "Evaluation of the Swedish earned income tax credit," Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics 2012:2, Uppsala University, Department of Economics.
  3. Ann-Sofie Kolm & Mirco Tonin, 2012. "In-Work Benefits and the Nordic Model," CEU Working Papers, Department of Economics, Central European University 2013_1, Department of Economics, Central European University, revised 14 Dec 2012.

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