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Subsidizing new jobs in the Euro-zone periphery

Author

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  • Beqiraj, Elton
  • Tancioni, Massimiliano
Abstract
The macroeconomic effects of a selective wage subsidy targeted to new labour hires are evaluated and compared with those of standard fiscal instruments. The analyses are based on a search and matching monetary model in which a distinction between the wage negotiated by newly-hired workers and incumbents is introduced. The model is estimated using data for high unemployment countries of the Euro-zone periphery. We show that, although the labour market policy can be an effective measure to jump-start employment, it is not superior to standard fiscal expansions in stimulating a timely response of economic activity. A liquidity trap environment reinforces these results, showing that policy actions triggering a deflation can be pro-cyclical with zero interest rates.

Suggested Citation

  • Beqiraj, Elton & Tancioni, Massimiliano, 2023. "Subsidizing new jobs in the Euro-zone periphery," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 380-401.
    • Handle: RePEc:eee:reveco:v:86:y:2023:i:c:p:380-401
    DOI: 10.1016/j.iref.2023.03.018
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    More about this item

    Keywords

    Wage subsidies; Newly hired workers; Search and matching; Fiscal multiplier; Zero lower bound; Bayesian estimation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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