Optimal Welfare-to-Work Programs
By Nicola Pavoni, Giovanni L. Violante. 2007
142 citations recorded by the source corpus.
A Welfare-to-Work (WTW) program is a mix of government expenditures on various labor market policies targeted to the unemployed (e.g., unemployment insurance, job search monitoring, social assistance, wage subsidies). This paper provides a dynamic principal-agent framework suitable for analyzing chief features of an optimal WTW program such as the sequence and duration of the different policies, the dynamic pattern of payments along the unemployment spell, and the emergence of taxes/subsidies upon re-employment. The optimal program endogenously generates an absorbing policy of last resort ('social assistance') characterized by a constant lifetime payment and no active participation by the agent. Human capital depreciation is a necessary condition for policy transitions to be part of an optimal WTW program. The typical sequence of policies is quite simple: the program starts with standard unemployment insurance, then switches into monitored search and, finally, into social assistance. The optimal benefits are decreasing during unemployment insurance and constant during both job search monitoring and social assistance. Whereas taxes (subsidies) can be either increasing or decreasing with duration during unemployment insurance, they must decrease (increase) during a phase of job search monitoring. In a calibration exercise, we use our model to analyze quantitatively the features of the optimal program for the U.S. economy. With respect to the existing U.S. system, the optimal WTW scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance, and using costly monitoring less intensively.
Subfields: Economics and Econometrics, Gender Studies
View Paper: https://www.semanticscholar.org/paper/4fedbef9d62123f58ca3a01ec8d14c7ff5472ef4
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Citations in the corpus
- Unemployed and their caseworkers: should they be friends or foes? (2010, unknown): “To be more precise, we use statistical propensity score matching with an extension to radius matching and incorporating regression-type adjustment following ideas by Rubin (1979), Abadie and Imbens (2006), and others.”
- The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation (2016, background): “For example, Pavoni and Violante (2007) incorporate these components in a principal-agent model, and derive the optimal policy that arises.”
- Labor Market Effects of Unemployment Insurance Design (2014, unknown): “A UI system with a declining sequence of benefits has been considered optimal in the presence of moral hazard because it provides stronger incentives to search (Shavell and Weiss, 1979; Hopenhayn and Nicolini, 1997; Pavoni and Violante, 2007).”