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Unemployment versus Mismatch of Talents: Reconsidering Unemployment Benefits

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  • Marimon, Ramon
  • Zilibotti, Fabrizio

Abstract

We develop an equilibrium search-matching model with risk-neutral agents and two-sided ex-ante heterogeneity. Unemployment insurance has the standard effect of reducing employment, but also helps workers to get a suitable job. The predictions of our simple model are consistent with the contrasting performance of the labour market in Europe and the United States in terms of unemployment, productivity growth and wage inequality. To show this, we construct two fictitious economies with calibrated parameters which only differ by the degree of unemployment insurance and assume that they are hit by a common technological shock which enhances the importance of mismatch. This shock reduces the proportion of jobs that workers regard as acceptable in the economy with unemployment insurance (Europe). As a result, unemployment doubles in this economy. In the laissez-faire economy (United States), unemployment remains constant, but wage inequality increases more and productivity grows less due to larger mismatch. The model can be used to address a number of normative issues.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1769.

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Date of creation: Dec 1997
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Handle: RePEc:cpr:ceprdp:1769

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Related research

Keywords: Efficiency; ex-ante heterogeneity; Inequality; Mismatch; Productivity; Search; Unemployment; Unemployment Benefits;

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Citations

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Cited by:
  1. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," NBER Working Papers 7352, National Bureau of Economic Research, Inc.
  2. Solenne Tanguy, 2005. "Gains de productivité et contrôle de la recherche d'emploi," Cahiers de la Maison des Sciences Economiques v06028, Université Panthéon-Sorbonne (Paris 1).
  3. Gautier, Pieter & Zenou, Yves, 2008. "Car Ownership and the Labor Market of Ethnic Minorities," IZA Discussion Papers 3814, Institute for the Study of Labor (IZA).
  4. Zenou, Yves, 2007. "Why do Black Workers Search Less? A Transport-Mode Based Theory," CEPR Discussion Papers 6155, C.E.P.R. Discussion Papers.
  5. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2006. "Technology-policy interaction in frictional labor markets," Working Paper 06-10, Federal Reserve Bank of Richmond.
  6. Per Krusell & Toshihiko Mukoyama & Ayşegül Şahin, 2010. "Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1477-1507.
  7. Hans H. Glismann & Klaus Schrader, 2001. "Alternative Systeme der Arbeitslosenversicherung � Das Beispiel der Vereinigten Staaten und des Vereinigten Königreichs," Kiel Working Papers 1032, Kiel Institute for the World Economy.
  8. Decreuse, Bruno, 2003. "Choosy search and the mismatch of talents," MPRA Paper 3636, University Library of Munich, Germany, revised Feb 2007.
  9. Butter, Frank A.G. den & Montfort, Kees van & Weitenberg, Gerben T.J., 1999. "Unemployment dynamics, and the propagation of aggregate and reallocation shocks using flow data for the Netherlands," Serie Research Memoranda 0024, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  10. Butter, Frank A.G. den & Kock, Udo, 2001. "Social security, economic growth and poverty : theoretical considerations and guidelines for institutional arrangements," Serie Research Memoranda 0002, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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