Wage subsidies and in-work benefits

  • Can hiring subsidies benefit the unemployed?

    Hiring subsidies can be a very cost-effective way of helping the unemployed, but only when they are carefully targeted

    Alessio J. G. Brown, June 2015
    Long-term unemployment can lead to skill attrition and have detrimental effects on future employment prospects, particularly following periods of economic crises when employment growth is slow and cannot accommodate high levels of unemployment. Addressing this problem requires the use of active labor market policies targeted at the unemployed. In this context, hiring subsidies can provide temporary incentives for firms to hire unemployed workers and, when sensibly targeted, are a very cost-effective and efficient means of reducing unemployment, during both periods of economic stability and recovery.
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  • Do in-work benefits work for low-skilled workers? Updated

    To boost the employment rate of the low-skilled trapped in inactivity is it sufficient to supplement their earnings?

    High risk of poverty and low employment rates are widespread among low-skilled groups, especially in the case of some household compositions (e.g. single mothers). “Making-work-pay” policies have been advocated for and implemented to address these issues. They alleviate the above-mentioned problems without providing a disincentive to work. However, do they deliver on their promises? If they do reduce poverty and enhance employment, is it possible to determine their effects on indicators of well-being, such as mental health and life satisfaction, or on the acquisition of human capital?
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  • Labor market policies, unemployment, and identity Updated

    Policies to help the unemployed can affect feelings of identity and well-being, so measures need to be evaluated carefully

    Ronnie Schöb, November 2021
    Unemployment not only causes material hardship but can also affect an individual's sense of identity (i.e. their perception of belonging to a specific social group) and, consequently, feelings of personal happiness and subjective well-being. Labor market policies designed to help the unemployed may not overcome their misery: wage subsidies can be stigmatizing, measures that require some work or attendance for training from those receiving benefits (workfare) may not provide the intended incentives, and a combination of an unregulated labor market and policy measures that bring people who became unemployed quickly back to work (flexicurity) may increase uncertainty. Policies aimed at bringing people back to work should thus take the subjective well-being of the affected persons more into consideration.
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  • Managerial quality and worker productivity in developing countries

    Business consulting and supervisory skills training can improve firm productivity and labor relations

    Achyuta Adhvaryu, February 2018
    Productivity differences across firms and countries are surprisingly large and persistent. Recent research reveals that the country-level distributions of productivity and quality of management are strikingly similar, suggesting that management practices may play a key role in the determination of worker and firm productivity. Understanding the causal impacts of these practices on productivity and the effectiveness of various management interventions is thus of primary policy interest.
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  • Short-time work compensation schemes and employment Updated

    Temporary government schemes can have a positive economic effect

    Pierre Cahuc, May 2019
    Government schemes that compensate workers for the loss of income while they are on short hours (known as short-time work compensation schemes) make it easier for employers to temporarily reduce hours worked so that labor is better matched to output requirements. Because the employers do not lay off these staff, the schemes help to maintain permanent employment levels during recessions. However, they can create inefficiency in the labor market, and might limit labor market access for freelancers and those looking to work part-time.
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  • Should severance pay be consistent for all workers?

    Single, open-ended contracts with severance pay smoothly rising with seniority can decrease both unemployment and job losses

    The trend towards labor market flexibility in Europe has typically involved introducing legislation that makes it easier for firms to issue temporary contracts with low firing costs, while not changing the level of protection that is in place for permanent jobs. This has created a strong “dualism” in some European labor markets, which might affect turnover, wage setting, and human capital accumulation. In view of this, some economists propose replacing the existing system of temporary and permanent contracts by a single open-ended contract for new hires, with severance pay smoothly increasing with tenure on the job.
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  • Should unemployment insurance cover partial unemployment? Updated

    Time-limited benefits may yield significant welfare gains and help underemployed part-time workers move to full-time employment

    Susanne Ek Spector, June 2022
    A considerable share of the labor force consists of underemployed part-time workers: employed workers who, for various reasons, are unable to work as much as they would like to. Offering unemployment benefits to part-time unemployed workers is controversial. On the one hand, such benefits can strengthen incentives to take a part-time job rather than remain fully unemployed, thus raising the probability of obtaining at least some employment. On the other hand, these benefits weaken incentives for part-time workers to look for full-time employment. It is also difficult to distinguish people who work part-time by choice from those who do so involuntarily.
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