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Optimal Workfare with Voluntary and Involuntary Unemployment

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  • Claus Thustrup Kreiner
  • Torben Tranæs

Abstract

This paper addresses the welfare implications of introducing workfare into unemployment benefit policy. We consider a population composed of employed and unemployed workers and of individuals who do not seek employment. Job search behavior is unobservable, which means that voluntarily unemployed individuals can claim unemployment insurance (UI) benefits intended for unemployed workers. As a consequence, pecuniary benefit schemes underinsure workers against unemployment. We show that requiring unproductive activities (workfare) in exchange for UI benefits may generate a Pareto improvement by facilitating better unemployment insurance for workers, and we characterize the situations where this is the case.

Suggested Citation

  • Claus Thustrup Kreiner & Torben Tranæs, 2005. "Optimal Workfare with Voluntary and Involuntary Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 459-474, September.
    • Handle: RePEc:bla:scandj:v:107:y:2005:i:3:p:459-474
    DOI: 10.1111/j.1467-9442.2005.00418.x
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    References listed on IDEAS

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    1. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
    2. Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-622, October.
    3. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, July.
    4. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
    5. Bertil Holmlund, 1998. "Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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