A Normative Analysis of Wage Subsidies and Unemployment Benefits Under Fixed Number of Working Hours
In recent years Western governments have introduced a number of emergency measures in their fight against short run unemployment. In this paper a normative analysis concerning the joint implementation of two such measures is offered, viewing unemployment as involuntary, and taking account of the dissatisfaction cost (lack of the social status that having a job provides) borne by unemployed workers. Attention is paid to the existing trade-off between a policy of wage subsidies to the private sector aimed at stimulating employment and a policy of transfer payments to the unemployed intended to increase their purchasing power. In a simple general equilibrium model with wage rigidity, wage subsidy formulas are derived for two settings of incomes control.
|Date of creation:||01 Dec 1994|
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