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Optimal Government Policies Related to Unemployment

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  • Chia-Hui Lu

Abstract

This article studies the optimal government policies related to unemployment in a frictional labor market. To achieve the optimal allocation, we find that the government should not issue unemployment compensation or subsidies for hiring costs. Moreover, as both firms and households experience disastrous consequences related to the minimum wage, the government should not intervene in the labor market to influence the wage rate and should not set any minimum wage. What the government can do is to make appropriate expenditures on matching efficacy. Furthermore, considering heterogeneous labor abilities in the model does not change our main finding.

Suggested Citation

  • Chia-Hui Lu, 2019. "Optimal Government Policies Related to Unemployment," Public Finance Review, , vol. 47(1), pages 87-111, January.
    • Handle: RePEc:sae:pubfin:v:47:y:2019:i:1:p:87-111
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    Cited by:

    1. Gibson, John & Heutel, Garth, 2023. "Pollution and labor market search externalities over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).

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