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Optimal Size and Intensity of Job Search Assistance Programs

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  • Evelyn Ribi

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    Abstract

    This paper derives the welfare optimal size and intensity of job search assistance programs in a general equilibrium model where the labor market is affected by search frictions. Both instruments have a priori ambiguous fiscal implications: their direct employment stimulating effects broaden the base of the labor income tax and increase revenues, while also incurring direct costs. At optimal levels, the policy instruments trade off the positive effects on the participants against a marginal increase in taxes, which distorts employment decisions and potentially labor market tightness. We find that the higher unemployment insurance benefits, the lower is the optimal program intensity. Further, the introduction of a job search assistance program is more likely to raise welfare if it is highly effective at improving participants' job search skills, direct program costs are low and if the general level of taxation in the economy and thus the labor market participation tax are high.

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    File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2009/DP-0919-Ri.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-19.

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    Length: 29 pages
    Date of creation: Aug 2009
    Date of revision:
    Handle: RePEc:usg:dp2009:2009-19

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    Keywords: Job search assistance; optimal size; optimal intensity; unemployment insurance;

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    1. Saint-Paul, Gilles, 1998. "A framework for analyzing the political support for active labor market policy," Journal of Public Economics, Elsevier, vol. 67(2), pages 151-165, February.
    2. Nicola Pavoni & Giovanni L. Violante, 2005. "Optimal welfare-to-work programs," Discussion Paper / Institute for Empirical Macroeconomics 143, Federal Reserve Bank of Minneapolis.
    3. Keuschnigg, Christian & Ribi, Evelyn, 2007. "Outsourcing, Unemployment and Welfare Policy," CEPR Discussion Papers 6605, C.E.P.R. Discussion Papers.
    4. Fredriksson, Peter, 1997. "The Political Economy of Public Employment Programs," Working Paper Series 1997:6, Uppsala University, Department of Economics.
    5. David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
    6. Peter Dolton & Donal O'Neill, 2002. "The Long-Run Effects of Unemployment Monitoring and Work-Search Programs: Experimental Evidence from the United Kingdom," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 20(2), pages 381-403, Part.
    7. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
    8. Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(430), pages 601-19, May.
    9. repec:fth:iniesr:429 is not listed on IDEAS
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