What can we expect from subsidies for the long-term unemployed?

What can we expect from subsidies for the long-term unemployed? According to Snower (1994a) unemployment would fall dramatically. Furthermore, the subsidy scheme would pay for itself. In this paper we argue that the impact on unemployment is more likely to be limited and is unlikely to constitute a ‘free lunch.’ We present an adapted version of MIMIC where we model the distinction between short and long-term unemployment explicitly. Simulation results on subsidies for the long-term unemployed are in line with the findings of microlevel studies on actually implemented subsidy schemes for the long-term unemployed. The simulation results are in contrast with Snower's analysis.