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Optimal unemployment insurance design: Time limits, monitoring, or workfare?

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Author Info

  • Peter Fredriksson

    ()

  • Bertil Holmlund

    ()

Abstract

This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity in preferences for leisure. The analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s10797-006-6249-3
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 5 (September)
Pages: 565-585

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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:5:p:565-585

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Unemployment insurance; Search; Monitoring; Sanctions; Workfare;

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References

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  1. Boone, J. & Fredriksson, P. & Holmlund, B. & Ours, J.C. van, 2007. "Optimal unemployment insurance with monitoring and sanctions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194308, Tilburg University.
  2. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  3. Berg, Gerard J. van den & Klaauw, Bas van der & Ours, Jan C. van, 1998. "Punitive sanctions and the transition rate from welfare to work," Serie Research Memoranda 0033, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  4. Davidson, Carl & Woodbury, Stephen A., 1997. "Optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 64(3), pages 359-387, June.
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  7. Lalive, Rafael & van Ours, Jan C. & Zweimüller, Josef, 2002. "The Effect of Benefit Sanctions on the Duration of Unemployment," IZA Discussion Papers 469, Institute for the Study of Labor (IZA).
  8. Boone, Jan & van Ours, Jan C, 2000. "Modelling Financial Incentives To Get Unemployed Back To Work," CEPR Discussion Papers 2361, C.E.P.R. Discussion Papers.
  9. Abbring, Jaap H. & Berg, Gerard J. van den & Ours, Jan C. van, 1996. "The effect of unemployment insurance sanctions on the transition rate from unemployment to employment," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  10. Besley, Timothy & Coate, Stephen, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 187-221, April.
  11. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  12. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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  15. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
  16. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, 07.
  17. Fredriksson, P. & Holmlund, B., 1998. "Optimal Unemployment Insurance in Search Equilibrium," Papers 1998-2, Uppsala - Working Paper Series.
  18. Claus Thustrup Kreiner & Torben Tranæs, 2003. "Optimal Workfare with Voluntary and Involuntary Unemployment," EPRU Working Paper Series 03-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2004.
  19. Gerard van den Berg & Bas van der Klaauw, 2000. "Counseling and Monitoring of Unemployed Workers: Theory and Evidence from a Social Experiment," Econometric Society World Congress 2000 Contributed Papers 0972, Econometric Society.
  20. Claus T. Hansen & Torben Tranaes, 2000. "Optimal Workfare in a Society of Workers and Non-Workers," Econometric Society World Congress 2000 Contributed Papers 0758, Econometric Society.
  21. Jeffrey Smith, 2000. "Is the Threat of Training More Effective than Training Itself? Experimental Evidence from the UI System," Econometric Society World Congress 2000 Contributed Papers 1660, Econometric Society.
  22. John Hassler & José V. Rodriguez Mora, 2002. "Should UI Benefits Really Fall over Time?," CESifo Working Paper Series 804, CESifo Group Munich.
  23. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  24. Dan A. Black & Jeffrey A. Smith & Mark C. Berger & Brett J. Noel, 2003. "Is the Threat of Reemployment Services More Effective Than the Services Themselves? Evidence from Random Assignment in the UI System," American Economic Review, American Economic Association, vol. 93(4), pages 1313-1327, September.
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