Optimal Workfare in Unemployment Insurance

Claus Thustrup Hansen and Torben Tranaes ()
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Claus Thustrup Hansen: Institute of Economics, University of Copenhagen
Authors registered in the RePEc Author Service: Claus Thustrup Kreiner

No 99-06, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Most workers are only partially insured against unemployment. One reason is that high unemployment compensation creates a free rider problem when monitoring of job search behavior is limited; people who do not seek employment (non-workers) may nevertheless collect unemployment compensation. We show that unproductive workfare for unemployed workers may improve unemployment insurance if workers and non-workers value leisure differently. If they differ only with respect to productivity workfare has to be based on a productivity related task requirement (task workfare); a simple time requirement (time workfare) is not enough. Task workfare is simply a better screening device, also implying that task workfare Pareto dominates time workfare. Finally, we show that the scope for using workfare is larger the smaller are the transfers from workers to non-workers.

Keywords: workfare; unemployment insurance (search for similar items in EconPapers)
JEL-codes: D6 D8 J6 (search for similar items in EconPapers)
Pages: 23 pages
Date: 1999-03
New Economics Papers: this item is included in nep-ias and nep-ltv
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9906

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