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.
