Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?

43 Pages Posted: 19 Oct 2008

See all articles by Elke J. Jahn

Elke J. Jahn

Institute for Employment Research (IAB); University of Bayreuth; IZA Institute of Labor Economics

Thomas Wagner

University of Applied Sciences Nurnberg

Abstract

To reduce unemployment targeted hiring subsidies for long-term unemployed are often recommended. To explore their effect on employment and wages, we devise a model with two types of unemployed and two methods of search, a public employment service (PES) and random search. The eligibility of a new match depends on the applicant's unemployment duration and on the method of search. The hiring subsidy raises job destruction and extends contrary to Mortensen-Pissarides (1999, 2003) the duration of a job search, so that equilibrium unemployment increases. Like the subsidy, organizational reforms, which advance the search effectiveness of the PES, crowd out the active jobseekers and reduce overall employment as well as social welfare. Nevertheless, reforms are a visible success for the PES and its target group, as they significantly increase the service's placement rate and lower the duration of a job search via the PES.

Keywords: matching model, hiring subsidy, endogenous separation rate, active labour market policy, PES, random search

JEL Classification: J41, J63, J64, J68

Suggested Citation

Jahn, Elke J. and Wagner, Thomas, Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?. IZA Discussion Paper No. 3768, Available at SSRN: https://ssrn.com/abstract=1286726 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Elke J. Jahn (Contact Author)

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

University of Bayreuth ( email )

Bayreuth, 95447
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Thomas Wagner

University of Applied Sciences Nurnberg ( email )

90489 Nurenberg
Germany

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