Training or Search? Evidence and an Equilibrium Model

51 Pages Posted: 31 Jan 2010

See all articles by Jun Nie

Jun Nie

Federal Reserve Bank of Kansas City

Date Written: January 29, 2010


Training programs are a major tool of labor market policies in OECD countries. I use a unique panel data set on the labor market experience of individual German workers between 2000 and 2002 to estimate a dynamic model of search and training, which allows me to quantify the impact of training programs and unemployment benefits on employment, unemployment, output, and the government expenditures.

The model extends Ljungqvist and Sargent (JPE, 1998) by incorporating a training decision and a broader menu of unemployment benefits. Government-sponsored training programs feature a key trade-off with respect to unemployment insurance programs: they offer more generous unemployment benefits but require more time and effort from workers to generate higher skills. As a result, unemployed workers with different human capital and benefits make different decisions about training, search, and job acceptance.

I use the model to quantitatively study the recent reforms implemented in Germany and run more counterfactual experiments. I simulate the transition path under back-to-back unexpected reforms in 2003-2006 and find the dynamics of the model's unemployment rates are close to the data. In a counterfactual experiment in which I model an economy with a German-like training system and a US-like unemployment benefit structure (roughly, benefits are lower), I find that employment and output rise substantially.

Keywords: Training programs, Job search, Human Capital, Employment, Unemployment insurance

JEL Classification: E24, J08, J24, J45

Suggested Citation

Nie, Jun, Training or Search? Evidence and an Equilibrium Model (January 29, 2010). Available at SSRN: or

Jun Nie (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Drive
Kansas City, MO 64198
United States
(816) 881-2255 (Phone)
(816) 881-2199 (Fax)


Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics