Comparing the Effectiveness of Employment Subsidies

Alessio Brown, Christian Merkl and Dennis Snower

No 2835, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyses theoretically and empirically how employment subsidies should be targeted. We contrast measures involving targeting workers with low incomes/abilities and targeting the unemployed under the criteria of "approximate welfare efficiency" (AWE). Thereby we can identify policies that (a) improve employment and welfare, (b) do not raise earnings inequality and (c) are self-financing. We construct a microfounded, dynamic model of hiring and separations and calibrate it with German data. The calibration shows that hiring vouchers can be AWE, while low-wage subsidies do not satisfy AWE. Furthermore, hiring vouchers targeted at the long-term unemployed are more effective than those targeted at low-ability workers.

Keywords: duration; unemployment; employment; targeting; hiring voucher; low wage subsidy; self-financing (search for similar items in EconPapers)
JEL-codes: J23 J24 J38 J64 J68 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-06
New Economics Papers: this item is included in nep-lab and nep-ltv
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Citations: View citations in EconPapers (9)

Published - revised version published in: Labour Economics, 2011, 18 (2), 168-179

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https://docs.iza.org/dp2835.pdf (application/pdf)

Related works:
Journal Article: Comparing the effectiveness of employment subsidies (2011)
Working Paper: Comparing the effectiveness of employment subsidies (2010)
Working Paper: Comparing the Effectiveness of Employment Subsidies (2007)
Working Paper: Comparing the effectiveness of employment subsidies (2006)
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