1 Department of Economics, Aarhus School of Business, Aarhus BSS, Aarhus University2 Centre for Research in Integration, Education, Qualifications and Marginalization (CIM), Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Economics and Business Economics, Aarhus BSS, Aarhus University4 University of Applied Sciences Nuremberg5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
To reduce equilibrium unemployment targeted hiring subsidies and profilin techniques for long-term unemployed are often recommended. To analyze the effects of these two instruments, our model combines two search methods: the public employment serviceand random search, jobseekers choose between an active and a passive search strategy, while labour market policy has two options available. First, only the long-term unemployed placed by the public employment service are subsidized. Second, the subsidy is paid for each match with a long-term unemployed irrespective of the search method used. We show that under both regimes the equilibrium unemployment rate is increasing with respect to the hiring subsidy. The subsidy like the profiling measures, which improve the effectiveness of the public placement service, crowd-out the active jobseekers among the short- and the long-term unemployed and reduce total employment.