September 2008

No. 3687: Labor Market Policy Evaluation in Equilibrium: Some Lessons of the Job Search and Matching Model

published in: Labour Economics, 2010, 17 (1), 196-205

We 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 non-counseled. Dynamic analysis shows that permanent and transitory policies can have effects of opposite sign on unemployment.