We explore the consequences of public employment for labour market performance. Theory suggests that public employment may not only crowd out private employment, but also increase overall unemployment if, by offering attractive working conditions, it draws additional individuals into the labour...

We consider an equilibrium search model with on-the-job search where Þrms set wages. If employers are perfectly aware of all workers job opportunities, then when an employee receives an outside job offer, it is optimal for their employer to try to retain them by matching the offer, so long as...