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Optimal Welfare-to-Work Programs with Worker Profiling

Author

Listed:
  • Sergio Cappellini

    (Department of Economics, Ca' Foscari University of Venice; University of Padua)

Abstract

Profiling has a pivotal role in welfare-to-work programs in classifying jobless workers according to their abilities and assigning them to suitable labor-market policies. This analysis designs an optimal profiling policy, by embedding dynamic learning about a recipient's ability within principal-agent framework. In optimal profiling, a certain proportion of low-skilled workers may be persuaded that they are in fact high-skilled and referred to delegated search, together with actual high-skilled workers (positive type II error). This occurs whenever the government prefers that overly optimistic low-skilled workers search for jobs (with low incentive costs) rather than referring them to passive labor-market policies. On the other hand, a high-skilled worker is never classified as being low-skilled, nor she is referred to a passive policy (no type I error). In the US, an optimal profiling strategy would generate annual savings that range from around $0:6 million (South Dakota) to $201:1 million (California).

Suggested Citation

  • Sergio Cappellini, 2023. "Optimal Welfare-to-Work Programs with Worker Profiling," Working Papers 2023:08, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2023:08
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    More about this item

    Keywords

    Bayesian Persuasion; Job-Search Assistance; Non-Contractible Effort; Social Assistance; Unemployment Insurance; Worker Profiling;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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