Labor Market Policy Evaluation In Equilibrium: Some Lessons Of The Job Search And Matching Model

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Executive Summary

The authors analyze the consequences of counseling provided to job seekers in a standard job search and matching model. It turns out that neglecting equilibrium effects induced by counseling can lead to wrong conclusions. In particular, counseling can increase steady state unemployment although counseled job seekers exit unemployment at a higher rate than the no counseled. Dynamic analysis shows that permanent and transitory policies can have effects of opposite sign on unemployment. Most policy evaluations are based on comparing the behavior of participants and non participants in the policy.

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