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Optimal Use of Labour Market Policies

  • Conny Wunsch

    ()

Labour market policies for the unemployed combine passive income support with active measures that aim at improving jobseekers' employment prospects. This paper extends the theoretical framework developed by Pavoni and Violante (2005a) for the optimal choice between different active and passive policies for the unemployed to a setting which allows for the use of a job search assistance programme that affects the exit rate to employment by raising search effectiveness but not productivity in the job. These programmes are one of the most widely used activation measures in OECD countries and should, therefore, be taken into account when considering the optimal design of labour market policies. The enriched model allows to answer a wide range of interesting policy questions. It is used to assess the optimality of the West German policy in the period 2000-2002 as well as the benefits from introducing tight monitoring. It is shown that sizeable budget savings could have been realised by switching to the optimal scheme, but that the net gains from monitoring are only small. In addition, some interesting results on the optimal use of job search assistance and training are derived. It is shown that existing policies already share some but not all features of the optimal scheme.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2007/DP-26-Wu.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-26.

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Length: 53 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:usg:dp2007:2007-26
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  1. Hirano, Keisuke & Porter, Jack, 2006. "Asymptotics for statistical treatment rules," MPRA Paper 1173, University Library of Munich, Germany.
  2. Michael Lechner & Jeffrey Smith, 2003. "What is the Value Added by Caseworkers?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20031, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  3. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, 01.
  4. Christopher Phelan & Ennio Stacchetti, 1999. "Sequential equilibria in a Ramsey tax model," Staff Report 258, Federal Reserve Bank of Minneapolis.
  5. Rajeev Dehejia, 1999. "Program Evaluation as a Decision Problem," NBER Working Papers 6954, National Bureau of Economic Research, Inc.
  6. Michael Lechner, 2004. "Sequential Matching Estimation of Dynamic Causal Models," University of St. Gallen Department of Economics working paper series 2004 2004-06, Department of Economics, University of St. Gallen.
  7. Michael Gerfin & Michael Lechner, 2002. "A Microeconometric Evaluation of the Active Labour Market Policy in Switzerland," Economic Journal, Royal Economic Society, vol. 112(482), pages 854-893, October.
  8. Markus Frölich & Michael Lechner & Heidi Steiger, 2003. "Statistically Assisted Programme Selection - International Experiences and Potential Benefits for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(III), pages 311-331, September.
  9. Rajeev H. Dehejia & Sadek Wahba, 1998. "Propensity Score Matching Methods for Non-experimental Causal Studies," NBER Working Papers 6829, National Bureau of Economic Research, Inc.
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