Contingent Wage Subsidy

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Abstract

This paper proposes a policy aimed at tackling unemployment that arises from macroeconomic coordination failure. The policy offers firms wage subsidies payable only if the total number of new hires made across the economy is below a prespecified threshold. Subsidies provide incentives for firms to create jobs but the policy's goal is to generate a sufficiently large amount of employment spillovers to set off hiring complementarities taking employment beyond the threshold. Thus, subsidies are not distributed but the policy achieves a Pareto improvement. The market structure is important for policy design. Aggregative game techniques prove useful for the oligopsonistic case.

Original languageEnglish
Pages (from-to)1105-1119
Number of pages15
JournalJournal of Public Economic Theory
Volume22
Issue number4
Early online date11 Jun 2020
DOIs
Publication statusPublished - 24 Jul 2020

ASJC Scopus subject areas

  • Finance
  • Sociology and Political Science
  • Economics and Econometrics

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