Is It Worth Reducing Exclusion?
We study the welfare implications of shutting down long-run unemployment and exclusion. We develop a heterogeneous-agents model along the lines of Krussell and Smith (1998) that takes the existence of uninsured long-run unemployment explicitly into account. The status of a given individual in the labor market is described by a three-states markov chain. Long-run unemployment is characterized by its higher persistence in the model and by lower unemployment spells. We assume that the government is able to eliminate long-run unemployment, and then we evaluate the potential welfare gains of such a policy.
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|Date of creation:||01 Mar 1999|
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