Optimal Welfare-to-Work Programs
نویسندگان
چکیده
A Welfare-to-Work (WTW) program is a scheme of government expenditures on “passive” (unemployment compensation, social assistance) and “active” (job search monitoring, training, wage subsidies) labor market policies targeted to the unemployed. This paper studies the optimal WTW program as a recursive contract between a cost-minimizing government and a worker whose human capital depreciates during unemployment, and whose search/training effort is private information. We provide a characterization of the optimal sequence of policies along the unemployment spell. Within each policy-phase, we characterize the optimal time-profile of benefits and the optimal use of subsidies vs. taxes upo re-employment. In a calibration exercise based on the U.S. labor market and on the evidence of several pilot WTW programs, we use our framework to analyze quantitatively the features of the optimal WTW program for the U.S. economy and compare it to the existing welfare system. JEL Classification: D82, H21, J24, J64, J65.
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