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Optimal Unemployment Insurance for Older Workers

Author

Listed:
  • Hairault, Jean-Olivier
  • Langot, François
  • Ménard, Sébastien
  • Sopraseuth, Thepthida

Abstract

This paper shows that optimal unemployment insurance contracts are age-dependent. Older workers have only a few years left on the labor market prior to retirement. This short horizon implies a more decreasing replacement ratio. However, there is a sufficiently short distance to retirement for which flat unemployment benefits can be the optimal contract. It is the result of the inability to reconcile both incentives and insurance for the soon-to-be-retired unemployed workers. We show that the unemployment benefit agency could take advantage of the retirement period to tax pensions in order to optimize the trade-off between insurance and incentives at the end of working life.

Suggested Citation

  • Hairault, Jean-Olivier & Langot, François & Ménard, Sébastien & Sopraseuth, Thepthida, 2011. "Optimal Unemployment Insurance for Older Workers," CEPREMAP Working Papers (Docweb) 1107, CEPREMAP.
    • Handle: RePEc:cpm:docweb:1107
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    References listed on IDEAS

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    Cited by:

    1. García-Pérez, J. Ignacio & Jiménez-Martín, Sergi & Sánchez-Martín, Alfonso R., 2013. "Retirement incentives, individual heterogeneity and labor transitions of employed and unemployed workers," Labour Economics, Elsevier, vol. 20(C), pages 106-120.
    2. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2013. "Life-Cycle Equilibrium Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 843-882.
    3. Bruno Decreuse & Guillaume Wilemme, 2019. "Age discontinuity and nonemployment benefit policy evaluation through the lens of job search theory," 2019 Meeting Papers 890, Society for Economic Dynamics.
    4. J. García-Pérez & Alfonso Sánchez-Martín, 2015. "Fostering job search among older workers: the case for pension reform," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-34, December.
    5. Sarah Le Duigou & Pierre-Jean Messe, 2017. "Pension reforms, older workers' employment and the role of job separation and finding rates in France," TEPP Working Paper 2017-10, TEPP.
    6. Etienne Lale, 2019. "Labor-market Frictions, Incomplete Insurance and Severance Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 411-435, January.
    7. Parsons, Donald O., 2014. "Job Displacement Insurance: An Overview," IZA Discussion Papers 8223, Institute of Labor Economics (IZA).
    8. Liqun Liu & Andrew J. Rettenmaier & Thomas R. Saving, 2019. "Staying the Course or Rolling the Dice: Time Horizon’s Effect on the Propensity to Take Risk," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 42(1), pages 66-85.

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    More about this item

    Keywords

    Unemployment insurance; Retirement; Recursive contracts; Moral Hazard;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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