Optimal Size and Intensity of Job Search Assistance Programs

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Optimal Size and Intensity of Job Search Assistance Programs

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Evelyn Ribi ()

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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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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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-08-22 (All new papers)
NEP-DGE-2009-08-22 (Dynamic General Equilibrium)
NEP-IAS-2009-08-22 (Insurance Economics)
NEP-LAB-2009-08-22 (Labour Economics)

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