A life-cycle model of unemployment and disability insurance
AbstractThe paper builds a life-cycle model of heterogeneous agents with search frictions, in which individuals choose a sequence of saving and labor supply faced with uncertainty in longevity, employment, health status and medical expenditures. Unemployed individuals decide search intensity and whether to apply for disability insurance (DI) benefits if eligible. We investigate, first, the effects of cash and Medicare benefits of the DI system on the life-cycle pattern of employment. Without in-kind benefits through Medicare, the DI coverage could fall by 30%. Second, the impact of a change in labor market conditions and roles of the DI are studied. A rise in exogenous job separation rates or a fall in job finding rates by 20% each can lead to a drop in employment rate by 1.7 and 2.1 percentage points, respectively. A model without the DI could underestimate the effect on employment by more than 30%.
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Bibliographic InfoPaper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 442.
Date of creation: 2013
Date of revision:
Disability insurance; labor force participation; life-cycle; Medicare; unemployment insurance.;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-DGE-2013-06-04 (Dynamic General Equilibrium)
- NEP-HEA-2013-06-04 (Health Economics)
- NEP-IAS-2013-06-04 (Insurance Economics)
- NEP-MAC-2013-06-04 (Macroeconomics)
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