In-Work Benefi ts and Unemployment

In-work benefits are becoming an increasingly relevant labour market policy, graduallyexpanding in scope and geographical coverage. This paper investigates the equilibriumimpact of in-work benefits and contrasts it with the traditional partial equilibrium analysis. Wefind under which conditions accounting for equilibrium wage adjustments amplifies the impactof in-work benefits on search intensity, participation, employment, and unemployment,compared to a framework in which wages are fixed. We also account for the financing ofthese benefits and determine the level of benefits necessary to achieve efficiency in a labourmarket characterized by search externalities....