Long-term unemployment and subsidizing vacancies in a growth-matching model

Angela Birk

No 131, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: How can long-term unemployment be reduced by policy measures of the government? In this paper a growth-matching-model is developed, in which the unemployment pool consists of heterogeneous unemployed workers, short-term and long-term unemployed, and with an endogenous skill-depreciation of the long-term unemployed emerging as technical progress accelerates. For innovation countries characterized by rapid technical progress we show that through subsidizing vacancy creation which causes a substitution and an income effect long-term unemployment can be reduced. Since the positive substitution effect implied by subsidizing vacancy creation outweighs the negative income effect induced by taxing the household's income, a positive employment effect results leading to additional job-matches and decreasing unemployment duration. Therefore, the introduction of subsidies will be favorable for achieving a reduction in long-term unemployment.

Keywords: long-term unemployment; growth; search; matching; subsidies (search for similar items in EconPapers)
JEL-codes: E24 J41 O41 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwadp:26194

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