JOB MATCHING, TEMPORARY PUBLIC-EMPLOYMENT, AND EQUILIBRIUM UNEMPLOYMENT

The paper presents a theoretical analysis of the macroeconomic effects of temporary public employment programs ('relief jobs'). The framework is a matching model where wages are determined by Nash bargains between individual firms and workers. Public employment programs have a direct job placement effect which tends to reduce unemployment. There is also an effect on wage pressure, the direction of this effect hinges on whether the programs are aimed at increasing unemployment outflow or reducing unemployment inflow. A policy targeted at unemployment outflow has in general ambiguous effects on equilibrium unemployment since the job placement effect and the wage effect work in opposite directions. By contrast, a policy targeted at unemployment inflow will always reduce unemployment since the job placement effect is reinforced by the induced wage moderation.