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Long-term unemployment and subsidizing vacancies in a growth-matching model

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  • Birk, Angela

Abstract

How can long-term unemployment be reduced by policy measures of the government? In this paper a growth-matching-model is developed, in which the unemployment pool consists of heterogeneous unemployed workers, short-term and long-term unemployed, and with an endogenous skill-depreciation of the long-term unemployed emerging as technical progress accelerates. For innovation countries characterized by rapid technical progress we show that through subsidizing vacancy creation which causes a substitution and an income effect long-term unemployment can be reduced. Since the positive substitution effect implied by subsidizing vacancy creation outweighs the negative income effect induced by taxing the household's income, a positive employment effect results leading to additional job-matches and decreasing unemployment duration. Therefore, the introduction of subsidies will be favorable for achieving a reduction in long-term unemployment.

Suggested Citation

  • Birk, Angela, 2001. "Long-term unemployment and subsidizing vacancies in a growth-matching model," HWWA Discussion Papers 131, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26194
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    More about this item

    Keywords

    long-term unemployment; growth; search; matching; subsidies;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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