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Optimal Unemployment Insurance in an Estimated Job Search Model with Savings

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  • Rasmus Lentz

    (University of Wisconsin-Madison)

Abstract

The paper estimates a job search model with savings on Danish microdata that include observations on wealth and wages. Controlling for extensive observed and unobserved worker characteristics heterogeneity, the estimation relates observed unemployment spells to the model implied hazard rate for each worker. The model estimates are sensible and fit the data well. Optimal UI policy is determined in the estimated model as a trade-off between insurance provision and distortion of search incentives. The analysis emphasizes an important policy sensitivity to the interest rate and the importance of including transitional dynamics in the analysis. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2008.01.004
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 12 (2009)
Issue (Month): 1 (January)
Pages: 37-57

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Handle: RePEc:red:issued:07-9

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Related research

Keywords: Job search; Savings; Optimal Unemployment Insurance; Micro data estimation;

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References

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  1. Narayana Kocherlakota, 2010. "Figuring out the impact of hidden savings on optimal unemployment insuranc," Levine's Working Paper Archive 506439000000000291, David K. Levine.
  2. Rasmus Lentz & Torben Tranæs, 2002. "Job Search and Savings: Wealth Effects and Duration Dependence," CAM Working Papers, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics 2004-11, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Nov 2003.
  3. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 379-402, December.
  4. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 893-928, October.
  5. JOSEPH Gilles and WEITZENBLUM Thomas, 2001. "Unemployment Insurance and Precautionary Savings : Transitional Dynamics vs. Steady State Equilibrium," Computing in Economics and Finance 2001, Society for Computational Economics 96, Society for Computational Economics.
  6. Gerard J. van den Berg, 1998. "Empirical Inference with Equilibrium Search Models of the Labor Market," Tinbergen Institute Discussion Papers, Tinbergen Institute 98-089/3, Tinbergen Institute.
  7. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 403-425, December.
  8. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
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  11. Yann Algan & Arnaud Cheron & Jean-Olivier Hairault & Francois Langot, 2003. "Wealth Effect on Labor Market Transitions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 156-178, January.
  12. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1347-62, December.
  13. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 412-38, April.
  14. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(7), pages 1337-1371, October.
  15. Eckstein, Zvi & van den Berg, Gerard J., 2003. "Empirical Labor Search: A Survey," IZA Discussion Papers 929, Institute for the Study of Labor (IZA).
  16. Frederiksen, Anders & Graversen, Ebbe Krogh & Smith, Nina, 2001. "Overtime work, dual job holding and taxation," Working Papers, University of Aarhus, Aarhus School of Business, Department of Economics 01-7, University of Aarhus, Aarhus School of Business, Department of Economics.
  17. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers, Federal Reserve Bank of Minneapolis 502, Federal Reserve Bank of Minneapolis.
  18. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 24(1-2), pages 63-132.
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