NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Ofer Setty

Tel Aviv University
P.O. Box 39040
Tel Aviv 6997801
Israel

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Institutional Affiliation: Tel Aviv University

NBER Working Papers and Publications

January 2013Search and Work in Optimal Welfare Programs
with Nicola Pavoni, Giovanni L. Violante: w18666
Some existing welfare programs ("work-first") require participants to work in exchange for benefits. Others ("job search-first") emphasize private job-search and provide assistance in finding and retaining a durable employment. This paper studies the optimal design of welfare programs when (i) the principal/government is unable to observe the agent's effort, but can assist the agent's job search and can mandate the agent to work, and (ii) agents' skills depreciate during unemployment. In the optimal welfare program, assisted search is implemented between an initial spell of private search (unemployment insurance) and a final spell of pure income support where search effort is not elicited. To be effective, job-search assistance requires large reemployment subsidies. The optimal program fea...
 
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