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Unemployment Vouchers versus Low-Wage Subsidies


J. Michael Orszag


Towers Watson - Reigate (Surrey Office); Institute for the Study of Labor (IZA)

Dennis J. Snower


University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

July 2002

IZA Discussion Paper No. 537

Abstract:     
The paper examines the relative effectiveness of two policy proposals in reducing unemployment and working poverty: unemployment vouchers and low-wage subsidies. The unemployment vouchers are targeted exclusively at the unemployed (especially the longterm unemployed) and are provided only for a limited period of time. The low-wage subsidies, on the other hand, are granted to all low-wage earners regardless of their employment history and are of limitless duration. Our analysis indicates that the relative effectiveness of the two policies depends on workers' prospective wage growth. The more upwardly mobile workers are (i.e. the more their wages rise with employment duration), the more effective will unemployment vouchers be relative to low-wage subsidies. Conversely, the greater the danger that workers come to be trapped in dead-end jobs with flat wage profiles, the more effective will low-wage subsidies be relative to unemployment vouchers.

Number of Pages in PDF File: 46

Keywords: Unemployment, Poverty, Wages, Employment, Vouchers, Subsidies, Inequality

JEL Classification: J23, J32, J38, J64, J65, J68

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Date posted: August 21, 2002  

Suggested Citation

Orszag, J. Michael and Snower, Dennis J., Unemployment Vouchers versus Low-Wage Subsidies (July 2002). IZA Discussion Paper No. 537. Available at SSRN: http://ssrn.com/abstract=323590

Contact Information

J. Michael Orszag
Towers Watson - Reigate (Surrey Office) ( email )
Watson House
London Road
Reigate, Surrey, RH2 9PQ
United Kingdom
+44 1737 241144 (Phone)
+44 1737 241496 (Fax)
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Dennis J. Snower (Contact Author)
University of Kiel - Institute for World Economics (IfW) ( email )
Duesternbrooker Weg 120
D-24118 Kiel
Germany
+49+431-8814-235 (Phone)
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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