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Business Cycle Dependent Unemployment Insurance

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  • Andersen, Torben M
  • Svarer, Michael

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 also an incentive argument. If benefits are less distortionary in a recession than a boom, it follows that countercyclical benefits reduce average distortions compared to state independent benefits. We show that optimal benefits are state contingent and tend to reduce the structural (average) unemployment rate, although the variability of unemployment may increase.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7334.

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Date of creation: Jun 2009
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Handle: RePEc:cpr:ceprdp:7334

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

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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, 2013. "Optimal Unemployment Insurance over the Business Cycle," Discussion Papers 1303, Centre for Macroeconomics (CFM).
  2. Kurt Mitman & Stanislav Rabinovich, 2011. "Pro-cyclical Unemployment Benefits? Optimal Policy in an Equilibrium Business Cycle Model," PIER Working Paper Archive 11-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.
  4. Torben Andersen, 2010. "Unemployment Persistence," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 23-28, 04.
  5. 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.
  6. 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.

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