Monitoring, Sanctions and Front-Loading of Job Search in a Non-Stationary Model
Ghent University - Sherppa - Faculty of Economics and Business Administration; IRES, Université Catholique de Louvain; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)
Catholic University of Louvain - School of Economic and Social Research
University of Wuerzburg; Institute for the Study of Labor (IZA)
Bruno Van der Linden
Université Catholique de Louvain - Institut de Recherches Economiques et Sociales; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 6181
We develop and estimate a non-stationary job search model to evaluate a scheme that monitors job search effort and sanctions insured unemployed whose effort is deemed insufficient. The model reveals that such schemes provide incentives to the unemployed to front-load search effort prior to monitoring. This causes the job finding rate to increase above the post sanction level. After validating the model both internally and externally, we conclude that the scheme is effective in raising the job finding rate with minor wage losses. A basic cost-benefit analysis demonstrates that welfare losses for the unemployed are compensated by net efficiency gains for public authorities and society.
Number of Pages in PDF File: 44
Keywords: monitoring, sanctions, non-stationary job search, unemployment benefits, structural estimation
JEL Classification: J64, J68, C41
Date posted: December 17, 2011
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