The macroeconomic effects of a selective wage subsidy targeted to new labour hires are evaluated and compared with those of standard fiscal instruments. The analyses are based on a search and matching monetary model in which a distinction between the wage negotiated by newly-hired workers and incumbents is introduced. The model is estimated using data for high unemployment countries of the Euro-zone periphery. We show that, although the labour market policy can be an effective measure to jump-start employment, it is not superior to standard fiscal expansions in stimulating a timely response of economic activity. A liquidity trap environment reinforces these results, showing that policy actions triggering a deflation can be pro-cyclical with zero interest rates.
Subsidizing new jobs in the Euro-zone periphery / Beqiraj, Elton; Tancioni, Massimiliano. - In: INTERNATIONAL REVIEW OF ECONOMICS & FINANCE. - ISSN 1059-0560. - 86:(2023), pp. 380-401. [10.1016/j.iref.2023.03.018]
Subsidizing new jobs in the Euro-zone periphery
Elton Beqiraj;Massimiliano Tancioni
2023
Abstract
The macroeconomic effects of a selective wage subsidy targeted to new labour hires are evaluated and compared with those of standard fiscal instruments. The analyses are based on a search and matching monetary model in which a distinction between the wage negotiated by newly-hired workers and incumbents is introduced. The model is estimated using data for high unemployment countries of the Euro-zone periphery. We show that, although the labour market policy can be an effective measure to jump-start employment, it is not superior to standard fiscal expansions in stimulating a timely response of economic activity. A liquidity trap environment reinforces these results, showing that policy actions triggering a deflation can be pro-cyclical with zero interest rates.File | Dimensione | Formato | |
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