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The design of 'soft' welfare-to-work programs

Author

Listed:
  • Nicola Pavoni

    (Universita Bocconi)

  • Ofer Setty

    (Tel Aviv University)

  • Giovanni Violante

    (New York University)

Abstract

This paper models welfare-to-work programs as contracts offered by the principal/government to unemployed agents in an environment with moral hazard. A welfare-to-work program comprises of several policy instruments (e.g., job-search, assisted search, mandated work) the principal can use, in combination with welfare benefits, in order to minimize the costs of delivering promised utility to the agent. The generosity of the program and the skill level of the unemployed agent determine the optimal policy instrument to be implemented. Restricting attention to 'soft programs' -- contracts that make no use of punishments or sanctions -- allows a fully analytical characterization of the optimal program and, in addition, it makes the solution robust to hidden saving. (Copyright: Elsevier)

Suggested Citation

  • Nicola Pavoni & Ofer Setty & Giovanni Violante, 2016. "The design of 'soft' welfare-to-work programs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 160-180, April.
    • Handle: RePEc:red:issued:14-164
    DOI: 10.1016/j.red.2015.01.001
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    Cited by:

    1. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2020. "How Should Tax Progressivity Respond to Rising Income Inequality?," NBER Working Papers 28006, National Bureau of Economic Research, Inc.
    2. Nicholas Lawson, 2023. "Optimal unemployment policy," Economic Inquiry, Western Economic Association International, vol. 61(3), pages 675-692, July.
    3. Lifshitz, Chen Chana, 2017. "Fostering employability among youth at-risk in a multi-cultural context: Insights from a pilot intervention program," Children and Youth Services Review, Elsevier, vol. 76(C), pages 20-34.

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    More about this item

    Keywords

    Job-search assistance; Human capital; Social assistance; Unemployment insurance; Welfare-to-work; Work requirements;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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