The Displacement Effect of Reemployment Bonus Programs.

The authors develop a partial equilibrium matching model of the labor market in order to examine whether adoption of a reemployment bonus would displace workers not offered the bonus. They examine the displacement effect for (1) unemployment-insurance-eligible workers who are offered but do not find a job in time to qualify for a bonus and (2) unemployment-insurance-ineligible workers who are never offered a bonus. The model predicts minimal displacement of the former group. But for the latter group, the model predicts an increase in unemployment duration of 0.2-0.4 week and an increase in unemployment of up to two per thousand. Copyright 1993 by University of Chicago Press.