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Optimal Employment Subsidy to Heterogeneous Workers under Asymmetric Information

Author

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  • Picard, Pierre

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

It is wellknown that unemployment benefits and minimum income guarantees generate an unemployment trap. The unemployment is indeed not enticed to work because he is imposed at a 100% marginal tax rate. In this paper, we design the optimal employment without risking its budget deficit. The subsidy is applied on top of an initial tax-benefit system that can not be reformed. We show how this subsidy translates the point of 100% marginal tax to workers with lower abilities. Simulations show that full employment can be achieved in many cases. We relate then the properties of such subsidy to those of optimal non-linear taxation models.

Suggested Citation

  • Picard, Pierre, 1998. "Optimal Employment Subsidy to Heterogeneous Workers under Asymmetric Information," LIDAM Discussion Papers IRES 1998009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1998009
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    Citations

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    Cited by:

    1. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    2. Picard, Pierre M., 2001. "Job additionality and deadweight spending in perfectly competitive industries: the case for optimal employment subsidies," Journal of Public Economics, Elsevier, vol. 79(3), pages 521-541, March.

    More about this item

    Keywords

    altruism; habits; catching-up; regime shift;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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