The rapid rise in unemployment since 2008 caused
by the global financial crisis has created renewed interest in the
effects of well-designed unemployment benefit systems on the
speed at which labour markets recover and job creation
resumes. On the basis of a newly-created database on labour
market flows, this article makes use of a micro-founded macroeconomic
model to estimate different effects of active and
passive labour market spending on employment growth and
the state of public finances. It demonstrates, in particular, that
for the average advanced G20 country, spending on unemployment
benefits yields employment gains both in the shortterm
and long-term that are superior to those observed for
active labour market policies.Moreover, rather than tightening
their budgets prematurely, advanced G20 countries would
have fared much better in accepting further deterioration in
public finances stemming from higher spending on social
transfers in order to stimulate faster employment growth,
which would have led to a more rapid recovery in the state of
public finances as well.
Keywords unemployment, unemployment benefit, employment
creation, international
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