ARTICLES

 

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

 

 

Rangan Gupta¹; Charlotte B du Toit

Department of Economics, University of Pretoria

 

 

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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 parameterisation, 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.

Keywords: Active and passive policies of unemployment; unemployment benefits; endogenous growth

JEL E24, H55, J64, O41

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1 The authors would like to thank two anonymous referees for many helpful comments on an earlier version of the paper.