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Unemployment insurance and training in an equilibrium matching model with heterogeneous agents

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Author Info
Bruno, VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

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Abstract

This paper develops a joint evaluation of vocational training and unemployment insurance. This allows to analyze how these schemes complment each other from the viewpoints of labor market indicators and of welfare. For this purpose, a general equilibrium matching model is built where workers are heterogeneous and risk averse. Heterogeneity allows to look at the distribution of the effects. Job search effort and wages are endogenous in order to deal with the induced effects of these schemes. The net effect of these training programs appears to be gloomy. However, their impact on employment can be deeply affected by the design of passive policies. A declining time profile of benefit payments dominates a scheme with a constant replacement ratio. However, the optimal expected length of payment of ÔhighÕ benefits can vary a lot in the population. A reform that would relate this expected duration to search effort does not appear to produce substantial effects on any of the evaluation crieria. Performance indicators of the labor market and welfare criteria often vary in opposite directions after a reform. This questions the widespread focus on labor market indicators to guide the design of institutional reforms.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2003001.

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Length: 45
Date of creation: 01 Jan 2003
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Handle: RePEc:ctl:louvir:2003001

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Related research
Keywords: training; unemployment insurance; sanctions; policy complementaries; wage bargaining; equilibrium unemployment; equilibrium search;

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Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
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
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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Cited by:
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  1. Gabriele, CARDULLO & Bruno, VANDERLINDEN, 2006. "Employment subsidies and substitutable skills : An equilibrium matching approach," Discussion Papers (ECON - Département des Sciences Economiques) 2006010, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  2. Bruno, VAN DER LINDEN, 2005. "Equilibrium Evaluation of Active Labor Market Programmes Enhancing Matching Effectiveness," Discussion Papers (ECON - Département des Sciences Economiques) 2005007, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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