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Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?

  • Jahn, Elke J.

    ()

    (Institute for Employment Research (IAB), Nuremberg)

  • Wagner, Thomas

    ()

    (University of Applied Sciences Nuremberg)

To reduce unemployment targeted hiring subsidies for long-term unemployed are often recommended. To explore their effect on employment and wages, we devise a model with two types of unemployed and two methods of search, a public employment service (PES) and random search. The eligibility of a new match depends on the applicant's unemployment duration and on the method of search. The hiring subsidy raises job destruction and extends contrary to Mortensen-Pissarides (1999, 2003) the duration of a job search, so that equilibrium unemployment increases. Like the subsidy, organizational reforms, which advance the search effectiveness of the PES, crowd out the active jobseekers and reduce overall employment as well as social welfare. Nevertheless, reforms are a visible success for the PES and its target group, as they significantly increase the service's placement rate and lower the duration of a job search via the PES.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3768.

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Length: 43 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3768
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  1. Boone, Jan & van Ours, Jan C, 2004. "Effective Active Labour Market Policies," CEPR Discussion Papers 4707, C.E.P.R. Discussion Papers.
  2. Forslund, Anders & Johansson, Kerstin, 2007. "Random and stock-flow models of labour market matching - Swedish evidence," Working Paper Series 2007:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Alessio J. G. Brown, & Christian Merkl & Dennis J. Snower, 2006. "Comparing the Effectiveness of Employment Subsidies," Kiel Working Papers 1302, Kiel Institute for the World Economy.
  4. Kluve, Jochen, 2006. "The Effectiveness of European Active Labor Market Policy," IZA Discussion Papers 2018, Institute for the Study of Labor (IZA).
  5. José Ignacio García Pérez & Yolanda Rebollo Sanz, 2005. "A Structural Estimation to Evaluate the Wage Penalty after Unemployment in Europe," Economic Working Papers at Centro de Estudios Andaluces E2005/15, Centro de Estudios Andaluces.
  6. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  7. Sunde, Uwe, 2007. "Empirical matching functions: Searchers, vacancies, and (un-)biased elasticities," Munich Reprints in Economics 19586, University of Munich, Department of Economics.
  8. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
  9. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  10. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  11. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-33, December.
  12. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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