Efficient Training Programs for Workers on Welfare

This paper extends the recent recursive contract literature on optimal unemployment insurance and optimal welfare-to-work programs in order to study the constrained-efficient dynamic contract between government and unemployed worker when a costly "training technology" is available. We first analyze qualitatively the features of the contract. Next, we derive some quantitative implications by calibrating our model through a novel data source, the National Evaluation of Welfare-to-Work Strategies (NEWWS), a detailed panel dataset following over 3,000 women enrolled in a variety of training programs in several U.S. locations during the 1990s.