A Macro Theory of Employment Vouchers

This paper explores the optimal design of subsidies for hiring unemployed workers ("employment vouchers" for short) in the context of a simple macroeconomic model of the labor market. Focusing on the short-term and long-term effects of the vouchers on employment and unemplkoyment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of deadweight and displacement. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design.