| Abstract: | This paper reexamines the case for subsidizing employment. One superficially promising approach, based on the idea that government cofinancing of unemployment benefits could induce firms to lay off too many workers in bad times, turns out to be an unsatisfactory argument for employment subsidies when worker-firm contracts are optimal. But efficiency wage explanations for unemployment offer considerable scope for a revenue-neutral combination of a specific labour subsidy and ad valorem wage tax. When pitched low enough, unemployment must fall under a wide set of conditions. |
