Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?

Elke Jahn and Thomas Wagner ()
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Thomas Wagner: University of Applied Sciences Nuremberg

No 3768, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To reduce unemployment targeted hiring subsidies for long-term unemployed are often recommended. To explore their effect on employment and wages, we devise a model with two types of unemployed and two methods of search, a public employment service (PES) and random search. The eligibility of a new match depends on the applicant's unemployment duration and on the method of search. The hiring subsidy raises job destruction and extends contrary to Mortensen-Pissarides (1999, 2003) the duration of a job search, so that equilibrium unemployment increases. Like the subsidy, organizational reforms, which advance the search effectiveness of the PES, crowd out the active jobseekers and reduce overall employment as well as social welfare. Nevertheless, reforms are a visible success for the PES and its target group, as they significantly increase the service's placement rate and lower the duration of a job search via the PES.

Keywords: matching model; hiring subsidy; endogenous separation rate; active labour market policy; PES; random search (search for similar items in EconPapers)
JEL-codes: J41 J63 J64 J68 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008-10
New Economics Papers: this item is included in nep-dge and nep-lab
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Working Paper: Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment? (2008)
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