A Hiring Subsidy for Long-Term Unemployed in a Search Model with PES and Random Search

Elke Jahn and Thomas Wagner

No 113, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: Our search model combines two search methods, the public employment service (PES) and random search. The separation rate is endogenous, the job matching process consists of three stages. In the first and the second respectively the short-term (STU) and the long-term unemployed (LTU) randomly search for a vacancy. In the last stage the PES matches registered jobseekers with registered vacancies. The LTU cause training costs and, during the training period, have a lower marginal product than the STU. The effects of the hiring subsidy and of profiling techniques to increase the effectiveness of the PES depend on the target group. For target groups, who have relatively low private search costs in comparison with their productivity, not only the hiring subsidy but also the job placement activities of the PES are counterproductive and reduce overall employment.

Keywords: matching model; hiring subsidy; endogenous separation rate; active labour market policy; PES and search market (search for similar items in EconPapers)
JEL-codes: J41 J63 J64 J68 (search for similar items in EconPapers)
Date: 2003-06-04
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