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A positive theory of geographical mobility and social insurance

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Author Info

  • Hassler, John

    ()
    (Institute for International Economic Studies, Stockholm University)

  • Mora, Jose

    ()
    (Universitat Pompeu Fabra)

  • Storesletten, Kjetil

    ()
    (Institute for International Economic Studies, Stockholm University)

  • Zilibotti, Fabrizio

    ()
    (Institute for International Economic Studies, Stockholm University)

Abstract

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent´s attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states - one "European" steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one "American" steady- state featuring low unemployment, high mobility and low unemployment insurance.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 705.

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Length: 53 pages
Date of creation: 12 Feb 2002
Date of revision:
Handle: RePEc:hhs:iiessp:0705

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
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Fax: +46-8-161443
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Keywords: Employment; Migration; Geographical Mobility; Political Equilibrium; Unemployment Insurance; Voting;

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References

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  1. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  3. Cameron, Gavin & Muellbauer, John, 1998. "The Housing Market and Regional Commuting and Migration Choices," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(4), pages 420-46, September.
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  5. DaVanzo, Julie, 1978. "Does Unemployment Affect Migration?-Evidence from Micro Data," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 504-14, November.
  6. Pissarides, Christopher A & Wadsworth, Jonathan, 1989. "Unemployment and the Inter-regional Mobility of Labour," Economic Journal, Royal Economic Society, vol. 99(397), pages 739-55, September.
  7. Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1989. "Housing, Wages and UK Labour Markets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 97-136, March.
  8. Bartel, Ann P, 1979. "The Migration Decision: What Role Does Job Mobility Play?," American Economic Review, American Economic Association, vol. 69(5), pages 775-86, December.
  9. Borjas, George J & Bronars, Stephen G & Trejo, Stephen J, 1992. "Assimilation and the Earnings of Young Internal Migrants," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 170-75, February.
  10. Saint-Paul, G., 1993. "On the Political Economy of Labor Market Flexibility," DELTA Working Papers 93-02, DELTA (Ecole normale supérieure).
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  12. Krieg, Randall G., 1997. "Occupational change, employer change, internal migration, and earnings," Regional Science and Urban Economics, Elsevier, vol. 27(1), pages 1-15, February.
  13. Kennan, John & Walker, James R., 2010. "Wages, welfare benefits and migration," Journal of Econometrics, Elsevier, vol. 156(1), pages 229-238, May.
  14. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
  15. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2001. "Widening differences in Italian regional unemployment," Labour Economics, Elsevier, vol. 8(1), pages 103-129, January.
  16. Pallage, Stephane & Zimmermann, Christian, 2001. "Voting on Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 903-23, November.
  17. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  18. McCormick, Barry, 1997. "Regional unemployment and labour mobility in the UK," European Economic Review, Elsevier, vol. 41(3-5), pages 581-589, April.
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