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Welfare benefit reforms and employment

Author

Listed:
  • Marta Aloi
  • Teresa Lloyd-Braga
  • Manuel Leite-Monteiro

Abstract

We consider an economy characterised by involuntary unemployment among low skilled workers, and investigate the implications for employment and income of welfare schemes often advocated as less distortionary. We show that reducing unemployment benefits in favour of income subsidies (social benefits) reduces employment in general equilibrium and also the income of low skilled workers, for not too high distortions in the labour market. Furthermore, it leads to a higher tax burden and a welfare deterioration. To support employment, we suggest that systems grounded in contribution-based unemployment insurance schemes are to be preferred and strengthened.

Suggested Citation

  • Marta Aloi & Teresa Lloyd-Braga & Manuel Leite-Monteiro, 2017. "Welfare benefit reforms and employment," Discussion Papers 2017/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:17/02
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    References listed on IDEAS

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    More about this item

    Keywords

    Unemployment benefits; social benefits; taxes; unions; employment;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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