Year: 2013
Type: report
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.
DOI: 10.3386/w18666
Authors: Nicola Pavoni, Ofer Setty, Giovanni Violante
Language: English
Subfield: Gender Studies
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1533762108