Optimal Employment Subsidies and Market Structures in Industries with Unemployment

In this paper we analyze the issue of optimal employment subsidies in imperfectly competitive industries in which a distortion in the labour market generates involuntary unemployment. As a benchmark case, we focus on monopolies and duopolies and on complete information between firms and government. We characterize the levels and creations of employment in the subsidized industry and we check when such employment policies are more favorable to the least productive firms.