Modeling Financial Incentives to Get Unemployed Back to Work
54 Pages Posted: 6 Nov 2000
Date Written: January 2000
We model how unemployment benefit sanctions - benefit reductions that are imposed if unemployed do not comply with job search guidelines - affect unemployment. In our analysis we find that not only micro effects concerning the behavior of individual unemployed workers are relevant, but also macro-spillover effects from the additional creation of vacancies, which originates from the increased effectiveness of labor supply. We advocate that for a given loss in welfare for the unemployed benefit sanctions are more effective in reducing unemployment than an across the board reduction in the replacement rate.
JEL Classification: H55, J65, J68
Suggested Citation: Suggested Citation