The political economy of public employment programs
In this paper we study the consequences of endogenous active labor market policies. In particular it is assumed that all viable policies have to please the employed majority. The main objective is to seek the answer to the following question: In what sense does the political equilibrium deviate from the welfare optimum? We find that the political process yields excessive program activity under highly plausible circumstances. Thereason for this deviation from constrained efficiency is that active labor market policy inflicts costs on firms that are ignored by the employed.
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- Diamond, Peter A, 1981.
"Mobility Costs, Frictional Unemployment, and Efficiency,"
Journal of Political Economy,
University of Chicago Press, vol. 89(4), pages 798-812, August.
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- Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298. Full references (including those not matched with items on IDEAS)
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