Wage Subsidies for the Long Term Unemployed: A Search Theoretic Analysis
The persistence of mass unemployment in many OECD countries in the 1980s and 1990s has led to renewed interest in active labour market policies. We examine one such policy, a wage subsidy for employers hiring the long-term unemployed, using a search-theoretic framework. We assume that long-term unemployment leads to a loss of human capital, and that a subsidy can offset the consequent training costs faced by employers hiring the long-term unemployed. We argue that unemployment would be unambiguously reduced by such a policy. Furthermore, the often-made criticism of wage subsidies that they mainly lead to substitution, merely churning the unemployed, is misplaced. There are positive externalities to substitution that lead firms to open more vacancies, many of which in turn will be filled by the short-term unemployed.
|Date of creation:||May 1997|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Snower, Dennis J., 1994.
"Converting Unemployment Benefits into Employment Subsidies,"
CEPR Discussion Papers
930, C.E.P.R. Discussion Papers.
- Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
- Martin Neil Baily & James Tobin, 1977. "Macroeconomic Effects of Selective Public Employment and Wage Subsidies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 511-544.
- P. Diamond, 1980.
"Aggregate Demand Management in Search Equilibrium,"
268, Massachusetts Institute of Technology (MIT), Department of Economics.
- repec:hhs:iuiwop:429 is not listed on IDEAS
- Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1371-1391.
- Manning, Alan, 1993.
"Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations,"
Royal Economic Society, vol. 103(416), pages 98-118, January.
- Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
- Calmfors, Lars & Skedinger, Per, 1995.
"Does Active Labor Market Policy Increase Employment? Theoretical Considerations and Some Empirical Evidence from Sweden,"
Working Paper Series
429, Research Institute of Industrial Economics.
- Calmfors, Lars & Skedinger, Per, 1995. "Does Active Labour-Market Policy Increase Employment? Theoretical Considerations and Some Empirical Evidence from Sweden," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 91-109, Spring.
- Calmfors, L. & Skedinger, P., 1995. "Does Active Labour Market Policy Increase Employment? - Theoretical Considerations and Some Empirical Evidence from Sweden," Papers 590, Stockholm - International Economic Studies.
- J Richardson, 1997. "Can Active Labour Market Policy Work? Some Theoretical Considerations," CEP Discussion Papers dp0331, Centre for Economic Performance, LSE.
- Calmfors, Lars & Forslund, Anders, 1991. "Real-Wage Determination and Labour Market Policies: The Swedish Experience," Economic Journal, Royal Economic Society, vol. 101(408), pages 1130-48, September.
When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0347. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.