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The Effectiveness of Employment Vouchers: A Simple Approach

  • J. Michael Orszag
  • Dennis J. Shower
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    This paper explores the optimal design of subsidies for hiring unemployed workers ('employment vouchers' for short) in the context of a simple dynamic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design. We calibrate the model and evaluate the effectiveness of employment vouchers in reducing unemployment for a wide range of feasible parameters. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2000.

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    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 1 (2000)
    Issue (Month): 4 (November)
    Pages: 385-419

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    Handle: RePEc:bla:germec:v:1:y:2000:i:4:p:385-419
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    1. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
    2. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
    3. Stephen A. Woodbury & Robert G. Spiegelman, . "Bonuses to Workers and Employers to Reduce unemployment: Randomized Trials in Illinois," Upjohn Working Papers and Journal Articles sawrgs1987, W.E. Upjohn Institute for Employment Research.
    4. Hian Hoon, 1996. "Payroll taxes and VAT in a labor-turnover model of the ‘natural rate’," International Tax and Public Finance, Springer, vol. 3(3), pages 369-383, July.
    5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    6. Alan Krueger, 1987. "The Determinants of Queues for Federal Jobs," Working Papers 607, Princeton University, Department of Economics, Industrial Relations Section..
    7. Burgess, Simon & Pacelli, Lia & Rees, Hedley, 1997. "Job Tenure and Labour Market Regulation: A Comparison of Britain and Italy using Micro Data," CEPR Discussion Papers 1712, C.E.P.R. Discussion Papers.
    8. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
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