Publication

This paper analyzes theoretically and empirically how employment subsidies should be targeted. The authors contrast measures involving targeting workers with low incomes/abilities and targeting the unemployed under the criteria of "approximate welfare efficiency" (AWE). They construct a micro-founded, dynamic model of hiring and separations and calibrate it with German data. The calibration shows that hiring vouchers can be AWE, while low-wage subsidies do not satisfy AWE. Furthermore, the authors argue that hiring vouchers targeted at the long-term unemployed are more effective than those targeted at low-ability workers.