A General Equilibrium Evaluation of the Employment Service

This paper provides a general equilibrium evaluation of the Employment Service, also known as the Public Labor Exchange (PLX), a national program which facilitates meetings between job seekers and vacancies. The paper departs from the partial equilibrium framework of previous evaluations by constructing a dynamic general equilibrium matching model with the PLX as one search channel, and the other search channel comprising all other search methods. The PLX is a directed search channel in the sense that searchers are matched by skill levels. The model is calibrated to the U.S. PLX and to the U.S. labor market and is used to compute general and partial equilibrium impacts of the PLX. The findings are that (i) the partial equilibrium impacts are consistent with the empirical literature, but different from the general equilibrium ones; (ii) the standard assumption in the evaluation literature, that outcomes for agents who do not participate in a program are not directly affected by the program, does not hold for the PLX; (iii) the heterogeneity across and within worker skill levels plays an important role when computing aggregate impacts; and, (iv) equilibrium adjustments are driven by employers who post are high-skill vacancies when both search channels operate.