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Human Capital Accumulation and the Optimal Level of Unemployment Insurance Provision

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  • Brown, Eleanor
  • Kaufold, Howard
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    Abstract

    Previous studies of optimal unemployment insurance design ignore the impact of unemployment insurance on human capital investment decisions. The authors show that fully experience-rated unemployment insurance increases investment in human capital when future employment opportunities are not known with certainty. In the presence of wage taxation, the optimal level of unemployment insurance trades off full insurance and the impact, through human capital, of unemployment insurance on the wage tax base. This trade-off, in turn, depends on the extent to which human capital accumulation reallocates labor between market and untaxed nonmarket activities. Taxation of unemployment insurance benefits increases the optimal level of unemployment insurance provision. Copyright 1988 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Labor Economics.

    Volume (Year): 6 (1988)
    Issue (Month): 4 (October)
    Pages: 493-514

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    Handle: RePEc:ucp:jlabec:v:6:y:1988:i:4:p:493-514

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    Web page: http://www.journals.uchicago.edu/JOLE/

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    Cited by:
    1. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1879-1901, November.
    2. Brit S. Schneider & Udo Schneider & Volker Ulrich, 2007. "Health and the Decision to Invest in Education," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(5+6), pages 725-745, December.
    3. repec:old:wpaper:348 is not listed on IDEAS
    4. Carlos E. da Costa & Lucas Maestri, 2005. "The Interaction Between Unemployment Insurance And Human Capital Policies," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 089, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Castro-Fernandez, Rodriguo & Wodon, Quentin, 2002. "Protecting the Unemployed in Chile: From State Assistance to Individual Insurance?," MPRA Paper 15416, University Library of Munich, Germany.
    6. Kreider, Brent, 2008. "Optimal Wage Taxation When Human Capital and Employment Are Endogenous," Staff General Research Papers 12358, Iowa State University, Department of Economics.
    7. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.

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