Unemployment Vouchers versus Low-Wage Subsidies

Mike Orszag () and Dennis Snower
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Mike Orszag: Towers Watson

No 537, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The paper examines the relative effectiveness of two policy proposals in reducing unemployment and working poverty: unemployment vouchers and low-wage subsidies. The unemployment vouchers are targeted exclusively at the unemployed (especially the longterm unemployed) and are provided only for a limited period of time. The low-wage subsidies, on the other hand, are granted to all low-wage earners regardless of their employment history and are of limitless duration. Our analysis indicates that the relative effectiveness of the two policies depends on workers’ prospective wage growth. The more upwardly mobile workers are (i.e. the more their wages rise with employment duration), the more effective will unemployment vouchers be relative to low-wage subsidies. Conversely, the greater the danger that workers come to be trapped in dead-end jobs with flat wage profiles, the more effective will low-wage subsidies be relative to unemployment vouchers.

Keywords: vouchers; employment; wages; poverty; unemployment; subsidies; inequality (search for similar items in EconPapers)
JEL-codes: J23 J32 J38 J64 J65 J68 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2002-07
New Economics Papers: this item is included in nep-lab and nep-pub
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: Edmund S. Phelps (ed.), Designing Inclusion: Tools to Raise Low-end Pay and Employment in Private Enterprise, Cambridge University Press, 2003, 131 - 160

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