The Continuum Approach to Unemployment Policy: An Overview

This paper reviews a new approach to the design of unemployment policies. It focuses on polciies that have become an increasingly popular weapon against long-term unempoloyment, namely, policies that subsidize the hiring of the long-term unemployed. Whereas the existing literature usually assumes that workers can be divided into homogeneous groups (e.g., employe vs. unemployed, short- vs. long-term unemployed), the approach here characterizes worker heterogeneity in very general terms -- hire and job loss rates varying along the continuum -- and it examines the influence of this heterogeneity on the formulation of optimal unemployment policies.