Optimal Unemployment Insurance: How Important is the Demand Side?
AbstractI develop and simulate an equilibrium model of search with endogenous savings and search intensity. The wage offer distribution is endogenized by firms making vacancy and entry choices. This allows me to conduct a counterfactual analysis of the optimal unemployment insurance (UI) level. The provision of UI is motivated by the worker's inability to perfectly insure against income shocks, but at the same time UI introduces a distortion to the level of search intensity of the worker and vacancy intensity of firms. I find that equilibrium effects are important to take into account. Making policy from a partial model can introduce large welfare loses. It is also shown that different kinds of taxes have different implications on welfare.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2011-03.
Date of creation: 11 Mar 2011
Date of revision:
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Web page: http://www.econ.au.dk/afn/
Equilibrium Search Model; Optimal Unemployment Insurance; Endogenous Saving;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
- D9 - Microeconomics - - Intertemporal Choice
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-19 (All new papers)
- NEP-DGE-2011-03-19 (Dynamic General Equilibrium)
- NEP-IAS-2011-03-19 (Insurance Economics)
- NEP-LAB-2011-03-19 (Labour Economics)
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