In-Work Benefits and Unemployment
University of Southampton; IZA; Central European University (CEU)
Uppsala University; Institute for Labour Market Policy Evaluation
February 1, 2011
IZA Discussion Paper No. 5473
In-work benefits are becoming an increasingly relevant labour market policy, gradually expanding in scope and geographical coverage. This paper investigates the equilibrium impact of in-work benefits and contrasts it with the traditional partial equilibrium analysis. We find under which conditions accounting for equilibrium wage adjustments amplifies the impact of in-work benefits on search intensity, participation, employment, and unemployment, compared to a framework in which wages are fixed. We also account for the financing of these benefits and determine the level of benefits necessary to achieve efficiency in a labour market characterized by search externalities.
Number of Pages in PDF File: 31
Keywords: in-work benefits, search, labour force participation, wage adjustment
JEL Classification: J21, J38, H24working papers series
Date posted: February 7, 2011
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