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Unemployment Vouchers versus Low-Wage Subsidies

Author

Listed:
  • Orszag, Mike

    () (Towers Watson)

  • Snower, Dennis J.

    () (Kiel Institute for the World Economy)

Abstract

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.

Suggested Citation

  • Orszag, Mike & Snower, Dennis J., 2002. "Unemployment Vouchers versus Low-Wage Subsidies," IZA Discussion Papers 537, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp537
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    Citations

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    Cited by:

    1. Berthold, Norbert & von Berchem, Sascha, 2005. "Hartz IV: eine vertane Chance nutzen," Discussion Paper Series 79, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    2. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2011. "Comparing the effectiveness of employment subsidies," Labour Economics, Elsevier, vol. 18(2), pages 168-179, April.

    More about this item

    Keywords

    unemployment; poverty; wages; employment; vouchers; subsidies; inequality;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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