South African Journal of Economic and Management Sciences, Vol 12, No 1 (2009)

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Active versus passive policies of unemployment: growth and public finance perspectives

Rangan Gupta, Charlotte Du Toit

Abstract


This paper develops a general equilibrium endogenous growth model in an overlapping generations framework, and compares, in terms of economic growth, a passive unemployment policy (unemployment insurance) with an active unemployment policy (government expenditures targeted towards improving the job-finding probability of an unemployed). Besides, the standard result of unemployment being growth reducing, under realistic parameterization, we show that the government, under an active policy, can generate higher growth without any compromise on its own consumption, when compared to the unemployment benefit regime. The result, however, depends crucially on the efficiency with which the resources are spent in creating employment. 

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EISSN 2222-3436 (Online)