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Staying on the dole

Fachbereich Wirtschaftswiss., Univ. Hannover
Publication Date
  • J64
  • J31
  • J38
  • Ddc:330
  • Unemployment
  • Non-Participation
  • Skill Degradation
  • Re-Training
  • Unemployment Bene?Ts
  • Social Assistance
  • Present-Biased Preferences
  • Theorie
  • Arbeitslosigkeit
  • Arbeitslosenversicherung
  • Arbeitsuche
  • Economics
  • Education


We develop a simple model of labor market participation, human capital degradation, and re-training. We focus on how non-participation, as a distinct state from unemployment and employment, is determined by the welfare system in interaction with labor market conditions and personal characteristics. We provide a tractable framework to analyze how the decisions to exit the labor force and to mitigate human capital degradation by re-training depend on a broad range of factors such as education, skill degradation, age, labor market shocks, labor taxes, unemployment insurance benefits and social assistance. We extend our framework by allowing for time-inconsistent choices and demonstrate the possibility of an unemployment trap.

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