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Should UI Benefits Really Fall over Time?

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Author Info
Hassler, John
Mora, Jose V. Rodriguez

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Abstract

The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in an analytically tractable model allowing moral hazard, adverse selection and hidden savings. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden savings. In general, adverse selection problems calls for increasing benefits, moral hazard problems for constant benefits and decreasing search productivity for decreasing benefits.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 804.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_804

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Related research
Keywords: unemployment benefits; search; moral hazard; adverse selection;

Other versions of this item:

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September. [Downloadable!] (restricted)
  2. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 30(4), pages 505-517, July.
  3. Heer, Burkhard, 2000. "Employment and Welfare Effects of a Two-Tier Unemployment Compensation System," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March. [Downloadable!] (restricted)
  5. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April. [Downloadable!] (restricted)
    Other versions:
  6. Hassler, John & Mora, Jose V. Rodriguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "A Positive Theory of Geographic Mobility and Social Insurance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Engen, Eric M. & Gruber, Jonathan, 2001. "Unemployment insurance and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 545-579, June. [Downloadable!] (restricted)
  8. Bartel, Ann P, 1979. "The Migration Decision: What Role Does Job Mobility Play?," American Economic Review, American Economic Association, vol. 69(5), pages 775-86, December. [Downloadable!] (restricted)
  9. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation, Yale University. [Downloadable!]
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  10. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July. [Downloadable!] (restricted)
  12. Atila Abdulkadiroglu & Burhanettin Kuruscu & Aysegul Sahin, 2002. "Unemployment Insurance and the Role of Self-Insurance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 681-703, July. [Downloadable!] (restricted)
    Other versions:
  13. Cullen, Julie Berry & Gruber, Jonathan, 2000. "Does Unemployment Insurance Crowd Out Spousal Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 546-72, July. [Downloadable!] (restricted)
  14. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  16. Pissarides, Christopher A & Wadsworth, Jonathan, 1989. "Unemployment and the Inter-regional Mobility of Labour," Economic Journal, Royal Economic Society, vol. 99(397), pages 739-55, September. [Downloadable!] (restricted)
  17. 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.
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fredriksson, Peter & Holmlund, Bertil, 2005. "Optimal unemployment insurance design: time limits, monitoring, or workfare?," Working Paper Series 2005:13, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Hagedorn, Marcus & Kaul, Ashok & Mennel, Tim, 2002. "An Adverse Selection Model of Optimal Unemployment Insurance," IZA Discussion Papers 681, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Hassler, John & Rodríguez Mora, José Vicente, 2007. "Unemployment Insurance Design: Inducing Moving and Retraining," CEPR Discussion Papers 6364, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Christian Holzner & Volker Meier & Martin Werding, 2004. "Time Limits on Welfare Use under Involuntary Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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