Abstract
In-work benefits are becoming an increasingly relevant labour market policy, gradually expanding in scope and geographical coverage. This paper investigates the equilibrium impact of in-work benefits and contrasts it with the traditional partial equilibrium analysis. We find under which conditions accounting for equilibrium wage adjustments amplifies the impact of in-work benefits on search intensity, participation, employment, and unemployment, compared to a framework in which wages are fixed. We also account for the financing of these benefits and determine the level of benefits necessary to achieve efficiency in a labour market characterized by search externalities.
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We want to thank Lars Calmfors, John Hassler, Bruce Meyer, and seminar participants at SOLE, New York, Southampton University, University of Padova. Tonin gratefully acknowledge financial support from Jan Wallander’s and Tom Hedelius’ Research Foundations. This paper previously circulated under the title “In-work benefits in search equilibrium”.
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Kolm, AS., Tonin, M. In-work benefits and unemployment. Int Tax Public Finance 18, 74–92 (2011). https://doi.org/10.1007/s10797-010-9148-6
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DOI: https://doi.org/10.1007/s10797-010-9148-6