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Notes on behavioral economics and labor market policy (Babcock et al. 2012)

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Babcock, L., Congdon, W., Katz, L., & Mullainathan, S. (2012). Notes on behavioral economics and labor market policy. IZA Journal of Labor Policy, 1(1), 1-14.


    • The article’s objective was to assess how behavioral economics can inform labor policy reforms to increase policy efficiency.
    • The authors used behavioral economic theory to explain barriers to successful policies related to unemployment insurance, job search assistance, and job training. They also proposed policy solutions to overcome these barriers.
    • For unemployment insurance, the authors recommended implementing wage loss insurance that subsidizes reemployment wages to counteract individuals’ tendencies to set high reservation wages when seeking employment, which slows their return to work. They also recommended providing small, immediate, and high frequency reminders and incentives to search for work.
    • To increase participation in job search assistance, the authors recommended policies that automatically put unemployed individuals into services and/or to make job search assistance more user-friendly and personalized. Similarly, to increase participation in job training programs, the authors recommended streamlining or simplifying training offerings and providing guidance to reduce the burden on the prospective users to select and start a program. Simplifying the decision-making process by creating a competitive training market could also be beneficial to prospective users.

Reviewed by CLEAR

February 2016

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