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Discussion Paper
Optimal welfare-to-work programs
A Welfare-to-Work (WTW) program is a mix of government expenditures on passive (unemployment insurance, social assistance) and active (job search monitoring, training, wage taxes/subsidies) labor market policies targeted to the unemployed. This paper provides a dynamic principal-agent framework suitable for analyzing the optimal sequence and duration of the different WTW policies, and the dynamic pattern of payments along the unemployment spell and of taxes/subsidies upon re-employment. First, we show that the optimal program endogenously generates an absorbing policy of last resort (that we ...