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Equilibrium Search With Time-Varying Unemployment Benefits

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Author Info
James Albrecht
Susan Vroman

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Abstract

We show how time-varying unemployment benefits can generate equilibrium wage dispersion when identical firms post wages and homogeneous risk-averse workers search for jobs. We model a two-tier system similar to real-world UI programmes. The unemployed initially receive benefit "b". Eventually, if a worker does not find a job, the benefit falls to "s". The duration of high benefits is treated as an exponential random variable, so the model is stationary. We characterise the equilibrium and derive the comparative statics effects of changes in the two benefit levels and the expected duration of the high-benefit state on equilibrium wages and unemployment. Copyright 2005 Royal Economic Society.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2005.01012.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 505 (07)
Pages: 631-648
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Handle: RePEc:ecj:econjl:v:115:y:2005:i:505:p:631-648

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec.. [Downloadable!] (restricted)
  2. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-40, October. [Downloadable!] (restricted)
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  3. Albrecht, James W & Axell, Bo & Lang, Harald, 1986. "General Equilibrium Wage and Price Distributions," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 687-706, November. [Downloadable!] (restricted)
  4. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07. [Downloadable!] (restricted)
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  5. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 255-77, April. [Downloadable!] (restricted)
  6. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April. [Downloadable!] (restricted)
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  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Javier Ortega & Laurence Rioux, 2007. "On the Extent of Re-Entitlement Effects in Unemployment Compensation," IZA Discussion Papers 2807, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Gabriele, CARDULLO & Bruno, VANDERLINDEN, 2006. "Employment subsidies and substitutable skills : An equilibrium matching approach," Discussion Papers (ECON - Département des Sciences Economiques) 2006010, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  3. Chéron, Arnaud & Hairault, Jean-Oliver & Langot, François, 2004. "Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach," IZA Discussion Papers 1364, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Torben M. Andersen & Michael Svarer, 2008. "The role of workfare in striking a balance between incentives and insurance in the labour market," Economics Working Papers 2008-05, School of Economics and Management, University of Aarhus. [Downloadable!]
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  5. Tali Regev, 2006. "Unemployment insurance and the uninsured," Working Paper Series 2006-48, Federal Reserve Bank of San Francisco. [Downloadable!]
  6. Adrian Masters & Melvyn Coles, 2004. "Duration Dependent Unemployment Insurance and Stabilisation Policy," Discussion Papers 04-10, University at Albany, SUNY, Department of Economics. [Downloadable!]
  7. Gautier, Pieter A & Moraga-González, José-Luis & Wolthoff, Ronald, 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," CEPR Discussion Papers 6440, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Adrian Masters & Melvyn Coles, 2004. "Optimal Unemployment Insurance in a Matching Equilibrium," Discussion Papers 04-12, University at Albany, SUNY, Department of Economics. [Downloadable!]
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  9. Yosuke Oda, 2008. "Alteration in Skills and Career-Enhancing in a Frictional Labor Market," Discussion Papers in Economics and Business 08-09, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
  10. Tomer Blumkin & Yossi Hadar & Eran Yashiv, 2009. "The Macroeconomic Role of Unemployment Compensation," CEP Discussion Papers dp0909, Centre for Economic Performance, LSE. [Downloadable!]
  11. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To Match or Not to Match? Optimal Wage Policy With Endogenous Worker Search Intensity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 297-330, April. [Downloadable!] (restricted)
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