Munich Personal RePEc Archive

Employment Targeting in a Frictional Labor Market

Ghate, Chetan and Mazumder, Debojyoti (2018): Employment Targeting in a Frictional Labor Market.

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Abstract

Governments in both developing and developed economies play an active role in labor markets in the form of providing both formal public sector jobs and employment through public workfare programs. We refer to this as employment targeting. In the context of a simple search and matching friction model, we show that the propensity for the public sector to target more employment can increase the unemployment rate in the economy and lead to an increase in the size of the informal sector. Employment targeting can therefore have perverse effects on labor market outcomes.

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