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Business Cycle Dependent Unemployment Insurance

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  • Torben M. Andersen

    ()
    (School of Economics and Management, Aarhus University, Denmark)

  • Michael Svarer

    ()
    (School of Economics and Management, Aarhus University, Denmark)

Abstract

The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between "good" and "bad" states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2010-16.

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Length: 37
Date of creation: 15 Sep 2010
Date of revision:
Handle: RePEc:aah:aarhec:2010-16

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Web page: http://www.econ.au.dk/afn/

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Keywords: Unemployment benefits; business cycle; insurance; incentives;

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References

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As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Labor Economics > Unemployment Insurance > Optimal Unemployment Insurance
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Cited by:
  1. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "Optimal unemployment insurance over the business cycle," LSE Research Online Documents on Economics 35596, London School of Economics and Political Science, LSE Library.
  2. Kroft, Kory & Notowidigdo, Matthew J., 2012. "Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence," CLSSRN working papers clsrn_admin-2012-26, Vancouver School of Economics, revised 29 Oct 2012.
  3. Kurt Mitman & Stanislav Rabinovich, 2011. "Pro-Cyclical Unemployment Benefits? Optimal Policy in an Equilibrium Business Cycle Model," PIER Working Paper Archive 11-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Moyen, Stéphane & Stähler, Nikolai, 2009. "Unemployment insurance and the business cycle: prolong benefit entitlements in bad times?," Discussion Paper Series 1: Economic Studies 2009,30, Deutsche Bundesbank, Research Centre.
  5. Torben Andersen, 2010. "Unemployment Persistence," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 23-28, 04.
  6. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.

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