Working Paper: CEPR ID: DP1367
Authors: J. Michael Orszag; Dennis J. Snower
Abstract: This paper explores the optimal design of subsidies for hiring unemployed workers (?employment vouchers? for short) in the context of a simple macroeconomic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design.
Keywords: employment policy; unemployment benefits; government budget constraint
JEL Codes: J23; J24; J31; J32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| employment vouchers (J68) | hiring rate (J63) |
| employment vouchers (J68) | firing rate (J63) |
| hiring rate (J63) | unemployment (J64) |
| firing rate (J63) | unemployment (J64) |
| voucher size (L42) | hiring rate (J63) |
| voucher size (L42) | firing rate (J63) |
| employment vouchers (J68) | optimal employment voucher size (J68) |
| optimal employment voucher size (J68) | unemployment (J64) |