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Unemployment Vouchers versus Low-Wage Subsidies

Listed author(s):
  • Orszag, Mike


    (Towers Watson)

  • Snower, Dennis J.


    (Kiel Institute for the World Economy)

The paper examines the relative effectiveness of two policy proposals in reducing unemployment and working poverty: unemployment vouchers and low-wage subsidies. The unemployment vouchers are targeted exclusively at the unemployed (especially the longterm unemployed) and are provided only for a limited period of time. The low-wage subsidies, on the other hand, are granted to all low-wage earners regardless of their employment history and are of limitless duration. Our analysis indicates that the relative effectiveness of the two policies depends on workers’ prospective wage growth. The more upwardly mobile workers are (i.e. the more their wages rise with employment duration), the more effective will unemployment vouchers be relative to low-wage subsidies. Conversely, the greater the danger that workers come to be trapped in dead-end jobs with flat wage profiles, the more effective will low-wage subsidies be relative to unemployment vouchers.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 537.

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Length: 47 pages
Date of creation: Jul 2002
Handle: RePEc:iza:izadps:dp537
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