This paper considers the optimal hiring strategy of a firm that is unable to observe the productive abilities of all its applicants. Whom the firm considers as hireable, will depend crucially on the extent to which the firm can use its wage setting to mirror productivity differences. However,...

This paper investigates the consequences of skill loss as a result of unemployment in an efficiency wage model with turnover costs and on-the-job search. Firms are unable to differentiate wages and therefore prefer to hire employed searchers or unemployed workers who have not lost human capital....

Investigating the robustness of the skill-biased technical change hypothesis, this analysis incorporates two novel features. First, effective labor is modeled as the product of a quantity measure - number of employees with a given level of education - and a quality index, depending on, i.a.,...

The treatment effect of a Swedish employment subsidy is estimated using exact covariate-matching and instrumental variables methods. Our estimates suggest that the programme had a positive treatment effect for the participants. We also show how non-parametric methods can be used to estimate the...

This paper analyzes the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is...

This paper provides a review of the recent literature on how incentives in unemployment insurance (UI) can be improved. We are particularly concerned with three instruments, viz. the duration of benefit payments (or more generally the time sequencing of benefits), monitoring in conjunction with...

To examine the macro economic effects of government tax and punishment policies, this paper develops a three-sector general quilibrium model featuring matching frictions, heterogenous abilities and an informal sector with tax evasion. The choice of education is determined endogenously. Job...

Self-employment grants and employment subsidies are active labor market programs that aim at helping unemployed workers to escape unemployment by becoming self-employed or being hired at an initially reduced cost for the employer. In Sweden in the 1990's the participation rate in the...

This paper is concerned with social interactions and their importance for unemployment. A theoretical model is specified in which the psychological costs of unemployment depend upon the unemployment level. The analysis reveals social multiplier effects, and shows that multiple unemployment...

Using a unique micro panel data set we investigate whether active labor market programs improve employment prospects and increase mobility in the longer run. We consider two prototype programs: job creation programs and training programs. We find that both programs reduce the chances of finding...