Productivity insurance: the role of unemployment benefits in a multi-sector model
AbstractWe construct a multi-sector search and matching model where the unemployed receive idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits—productivity insurance while unemployed. Analytically, we characterize two competing effects of benefits on productivity, a moral hazard effect and a consumption effect. In a stylized quantitative analysis, we show that the consumption effect dominates, so that unemployment benefits increase per-worker productivity. We also analyze the welfare-maximizing benefit level and find that it decreases as moving costs increase.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 13-11.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-25 (All new papers)
- NEP-CTA-2013-09-25 (Contract Theory & Applications)
- NEP-DGE-2013-09-25 (Dynamic General Equilibrium)
- NEP-EFF-2013-09-25 (Efficiency & Productivity)
- NEP-IAS-2013-09-25 (Insurance Economics)
- NEP-LAB-2013-09-25 (Labour Economics)
- NEP-LAM-2013-09-25 (Central & South America)
- NEP-LTV-2013-09-25 (Unemployment, Inequality & Poverty)
- NEP-NEU-2013-09-25 (Neuroeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Productivity insurance: the role of unemployment benefits in a multi-sector model
by Christian Zimmermann in NEP-DGE blog on 2013-09-28 02:47:04
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