Temporary Wage Subsidies

Research Report

Temporary Wage Subsidies

February 25, 2002

Abstract

Providing fiscal or tax subsidies to try to promote additional work and saving is a relatively modern notion. These subsidies may stimulate demand by putting more money in the economy, but they are designed primarily to affect behavior through incentives. Modern industrial economies like the U.S. over time have enacted fiscal subsidy programs within three general categories: permanent capital subsidies, temporary capital subsidies, and permanent labor subsidies. Left off the table consistently has been a fourth option that logically completes the list: temporary labor subsidies. Yet during a downturn this fourth type of option might uniquely be able to provide the best combination of economic incentives for an expanding economy and a fair distribution of the stimulus benefits.

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