DP10270 Can active labor market policy be counter-productive?

Author(s): Gilles Saint-Paul
Publication Date: November 2014
Keyword(s): active labor market policies, Hosios condition, job matching
JEL(s): E24, E32, J41, J63, J64
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10270

We study active labor market policies (ALMP) in a matching model. ALMPs are modelled as a subsidy to job search. Workers differ in their productivity, and search takes place along an extensive margin. An additional job seeker affects the quality of unemployed workers. As a result, the Hosios conditions are no longer valid. To replicate the optimum the worker share in bargaining must exceed the Hosios level, and one must impose a tax on job search activity. The coalition in favor of ALMP is also studied.