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Business Cycle Dependent Unemployment Insurance

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Author Info

  • Andersen, Torben M

    ()
    (Aarhus University)

  • Svarer, Michael

    ()
    (Aarhus University)

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 there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5196.

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Length: 39 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5196

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

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References

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  1. Torben M. Andersen & Michael Svarer, 2011. "State Dependent Unemployment Benefits," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 325-344, 06.
  2. Messina, Julián & Strozzi, Chiara & Turunen, Jarkko, 2008. "Real Wages over the Business Cycle: OECD Evidence from the Time and Frequency Domains," IZA Discussion Papers 3884, Institute for the Study of Labor (IZA).
  3. Sophie Osotimehin & François Langot & Jean-Olivier Hairault, 2009. "Unemployment dynamics and the cost of business cycles," 2009 Meeting Papers 492, Society for Economic Dynamics.
  4. James Costain and Michael Reiter, 2001. "Stabilization versus Insurance," Computing in Economics and Finance 2001 161, Society for Computational Economics.
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  17. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
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  23. Bovenberg, A.L. & Hansen, M. & Sorensen, P.B., 2008. "Individual savings accounts for social insurance: Rationale and alternative designs," Open Access publications from Tilburg University urn:nbn:nl:ui:12-301941, Tilburg University.
  24. Antonio Spilimbergo & Steven A. Symansky & Carlo Cottarelli & Olivier J. Blanchard, 2009. "Fiscal Policy for the Crisis," IMF Staff Position Notes 2008/01, International Monetary Fund.
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  25. Sanchez, Juan M., 2006. "Optimal State-Contingent Unemployment Insurance," MPRA Paper 2535, University Library of Munich, Germany.
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RePEc Biblio mentions

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. 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.
  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. Kory Kroft & Matthew J. Notowidigdo, 2011. "Should Unemployment Insurance Vary With the Unemployment Rate? Theory and Evidence," NBER Working Papers 17173, National Bureau of Economic Research, Inc.
  4. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2013. "Optimal Unemployment Insurance over the Business Cycle," Discussion Papers 1303, Centre for Macroeconomics (CFM).
  5. Torben Andersen, 2010. "Unemployment Persistence," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 23-28, 04.
  6. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.

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