Optimal Workfare with Voluntary and Involuntary Unemployment

Claus Kreiner and Torben Tranaes ()

No 03-15, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper studies whether a benevolent government should use workfare as part of its unemployment benefit policy. We consider a population composed of employed and unemployed workers as well as individuals who do not seek employment. Job search behavior is private information implying that voluntarily unemployed individuals can claim unemployment insurance (UI) benefits intended for unemployed workers. As a consequence, pecuniary benefit schemes underinsure workers against unemployment. We show that requiring unproductive activities (workfare) in exchange for UI benefits may create a Pareto improvement by facilitating better unemployment insurance for workers, and we characterize the situations where this is the case.

Keywords: unemployment insurance; workfare; Pareto optimality (search for similar items in EconPapers)
JEL-codes: H2 J65 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2003-09, Revised 2004-08
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimal Workfare with Voluntary and Involuntary Unemployment* (2005)
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