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Why Cash Transfer Programs Can Both Stimulate and Slow Down Job Finding

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  • Vargas Juliana Mesén

    (Institut de recherches économiques et sociales (IRES)/Louvain Institute of Data Analysis and Modeling in economics and statistics (LIDAM), Université catholique de Louvain, Louvain, Belgium)

  • Linden Bruno Van der

    (Fonds national de la recherche scientifique (FNRS) and Institut de recherches économiques et sociales (IRES)/Louvain Institute of Data Analysis and Modeling in economics and statistics (LIDAM), Université catholique de Louvain, Louvain, Belgium)

Abstract

This article analyzes the behavioral effects of cash transfer programs when jobless people need to have access to a minimum consumption level. Our model reconciles recent evidence about negligible or favorable effects of cash transfers on job-finding rates and the more standard view of negative effects. When unemployment compensation, if any, is low enough, we argue that cash transfer programs can raise the hiring probability. Our framework is flexible enough to generate the standard conclusion as well. Looking specifically at unemployment compensation, its optimal level is generally higher than when a lower bound on consumption is ignored.

Suggested Citation

  • Vargas Juliana Mesén & Linden Bruno Van der, 2019. "Why Cash Transfer Programs Can Both Stimulate and Slow Down Job Finding," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-27, June.
    • Handle: RePEc:vrs:izajle:v:8:y:2019:i:1:p:27:n:1
    DOI: 10.2478/izajole-2019-0005
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    More about this item

    Keywords

    poverty; unemployment; optimal insurance;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • 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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