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Optimal Income Maintenance and the “Unemployable”

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  • Greg Leblanc

Abstract

This paper examines optimal income maintenance policy with asymmetric information about individuals' abilities. A minimum skill level is required for employment. The unemployable are those (low) ability types who find this minimum investment too costly. To guarantee some minimum income level, the government chooses between welfare, workfare, earnings subsidies, and training. Results show that the optimal scheme entails training. Moreover, though complex separating mechanisms are both feasible and encourage investments in skills, the least‐cost income maintenance scheme is quite simple: the government offers training at the lowest level consistent worth employment to all who want it.

Suggested Citation

  • Greg Leblanc, 2004. "Optimal Income Maintenance and the “Unemployable”," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 509-537, August.
    • Handle: RePEc:bla:jpbect:v:6:y:2004:i:3:p:509-537
    DOI: 10.1111/j.1467-9779.2004.00177.x
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    References listed on IDEAS

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    Cited by:

    1. Lohse Tim, 2014. "The Objections against Workfare Revised," Review of Economics, De Gruyter, vol. 65(1), pages 95-118, April.
    2. Flavio Marques & Simone Covre & Enlinson Mattos, 2008. "Oferta de trabalho e transferências: Evidências do efeito das condições impostas pelo programa Bolsa-Família," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807141223420, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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