Journal
EUROPEAN ECONOMIC REVIEW
Volume 44, Issue 9, Pages 1801-1822Publisher
ELSEVIER
DOI: 10.1016/S0014-2921(99)00005-7
Keywords
long-term unemployment; skill decay; training
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This paper develops a dynamically consistent model of search, matching and bargaining when worker skills decline while unemployed. Long-term unemployment emerges as an endogenous phenomenon Even with constant returns to matching. multiple Pareto rankable equilibria are possible. Policies to address long-term unemployment are best directed toward prevention (e.g. vacancy creation subsidies) rather than cure (e.g. retraining subsidies). (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: J41, J24.
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