Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2006:12: In-Work Benefits in Search Equilibrium

Ann-Sofie Kolm () and Mirco Tonin ()
Additional contact information
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.

Keywords: In-work benefits; unemployment; participation

JEL-codes: J21; J38

40 pages, December 21, 2006

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