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Employment Targeting in a Frictional Labor Market

Author

Listed:
  • Ghate, Chetan
  • Mazumder, Debojyoti

Abstract

Governments in both developing and developed economies play an active role in labor markets in the form of providing both formal public sector jobs and employment through public workfare programs. We refer to this as employment targeting. In the context of a simple search and matching friction model, we show that the propensity for the public sector to target more employment can increase the unemployment rate in the economy and lead to an increase in the size of the informal sector. Employment targeting can therefore have perverse effects on labor market outcomes.

Suggested Citation

  • Ghate, Chetan & Mazumder, Debojyoti, 2018. "Employment Targeting in a Frictional Labor Market," MPRA Paper 87065, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:87065
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    References listed on IDEAS

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    1. Charlot, Olivier & Malherbet, Franck & Ulus, Mustafa, 2013. "Efficiency in a search and matching economy with a competitive informal sector," Economics Letters, Elsevier, vol. 118(1), pages 192-194.
    2. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, July.
    3. Pontus Rendahl, 2016. "Fiscal Policy in an Unemployment Crisis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1189-1224.
    4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    5. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
    6. Basu, Arnab K. & Chau, Nancy H. & Kanbur, Ravi, 2009. "A theory of employment guarantees: Contestability, credibility and distributional concerns," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 482-497, April.
    7. Pedro Gomes, 2015. "Optimal Public Sector Wages," Economic Journal, Royal Economic Society, vol. 125(587), pages 1425-1451, September.
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    More about this item

    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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