DP1367 A Macro Theory of Employment Vouchers

Author(s): Mike Orszag, Dennis J. Snower
Publication Date: March 1996
Keyword(s): Employment Policy, Government Budget Constraint, Unemployment Benefits
JEL(s): J23, J24, J31, J32, J64
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1367

This paper explores the optimal design of subsidies for hiring unemployed workers (?employment vouchers? for short) in the context of a simple macroeconomic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design.