Impacts of hiring subsidies targeted at the long-term unemployed on the low-skilled labor market: The French experience

This paper proposes a theoretical matching framework to analyze firms' and workers' response to a targeted hiring subsidy program when taking into account interactions between segments of the low-skilled labor market. By developing a general equilibrium model, the paper provides a useful tool to evaluate the aggregate effects induced on the low-skilled labor market. Then, the model is computed above French data to estimate the employment and welfare effects of a measure introduced in France in 1995, the “Initiative-for-Employment Contract”. Finally, as the framework is well-suited to investigate design issues, I analyze the efficiency of the French program as well as targeting issues.