Search and Work in Optimal Welfare Programs

41 Pages Posted: 5 Jan 2013

See all articles by Nicola Pavoni

Nicola Pavoni

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Centre for Economic Policy Research (CEPR)

Ofer Setty

Tel Aviv University - Eitan Berglas School of Economics

Giovanni L. Violante

New York University, Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

Some existing welfare programs ("work-first") require participants to work in exchange for benefits. Others ("job search-first") emphasize private job-search and provide assistance in finding and retaining a durable employment. This paper studies the optimal design of welfare programs when (i) the principal/government is unable to observe the agent's effort, but can assist the agent's job search and can mandate the agent to work, and (ii) agents' skills depreciate during unemployment. In the optimal welfare program, assisted search is implemented between an initial spell of private search (unemployment insurance) and a final spell of pure income support where search effort is not elicited. To be effective, job-search assistance requires large reemployment subsidies. The optimal program features compulsory work activities for low levels of program's generosity (i.e., its promised utility or available budget). The threat of mandatory work acts like a punishment that facilitates the provision of search incentives without compromising consumption smoothing too much.

Suggested Citation

Pavoni, Nicola and Setty, Ofer Adi and Violante, Giovanni L., Search and Work in Optimal Welfare Programs (January 2013). NBER Working Paper No. w18666. Available at SSRN: https://ssrn.com/abstract=2196732

Nicola Pavoni (Contact Author)

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Ofer Adi Setty

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Giovanni L. Violante

New York University, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-992-9771 (Phone)
212-995-4186 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
14
Abstract Views
338
PlumX Metrics