Active and Passive Policies Against Poverty with Decreasing Employability
In this paper we propose a non-equilibrium model in order to explain the search behavior of unemployed workers. This modeling strategy, framed in a rational choice paradigm, allows us to investigate the effects of negative duration dependence in the out-of-unemployment hazard rate, accounting for a decrease in employability as the unemployment spell lengthens. We show that individuals react to an expected reduction in their search effectiveness by increasing their search efforts. We then analyze active and passive labor market policies, consisting in training programs and income support schemes. We show that it is optimal for the government to include among the eligibility criteria for subsidized training a minimum length of the unemployment spell. However, it is optimal to recruit workers before they become discouraged and stop searching. We also show that for a broad range of the parameters the optimal income support scheme takes the form of unemployment benefits granted for a limited amount of time starting from the beginning of the unemployment spell, coupled with social assistance for long-term unemployed with very limited residual employability.
|Date of creation:||2006|
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- John F. Ermisch & Robert E. Wright, 1991. "Welfare Benefits and Lone Parents' Employment in Great Britain," Journal of Human Resources, University of Wisconsin Press, vol. 26(3), pages 424-456.
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NBER Working Papers
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NBER Working Papers
8749, National Bureau of Economic Research, Inc.
- Robert A. Moffitt, 2003. "The Temporary Assistance for Needy Families Program," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 291-364 National Bureau of Economic Research, Inc.
- Robert Moffitt, 2001. "The Temporary Assistance for Needy Families Program," Economics Working Paper Archive 463, The Johns Hopkins University,Department of Economics.
- Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
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