() and Mirco Tonin
Ann-Sofie Kolm: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Mirco Tonin: Institute for International Economic Studies, Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Abstract: We study the general equilibrium effects of in-work beneifts in a search framework. Introducing in-work benefits reduces equilibrium unemployment, moderate wages, and boost participation and search. Total employment increases as a result. Considering in-work benefits in a general equilibrium setting reveals that employment increases mainly though the impact on job creation. This is in contrast to what is usually stressed, namely that employment increases because individuals are provided with incentives to take a job.
40 pages, December 21, 2006
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