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Should UI Benefits Really Fall Over Time?

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  • Hassler, John

    ()
    (Stockholm University)

  • Rodriguez Mora, José V.

    ()
    (University of Edinburgh)

Abstract

The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in a tractable model allowing moral hazard, adverse selection and hidden saving. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden saving. In general, adverse selection problems tend to generate increasing benefits, moral hazard problems constant benefits and decreasing search productivity falling benefits.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 622.

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Length: 29 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:iza:izadps:dp622

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Keywords: moral hazard; unemployment insurance; adverse selection;

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References

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  1. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
  2. John Hassler & José Vicente Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "A Positive Theory of Geographic Mobility and Social Insurance," Working Papers 86, Barcelona Graduate School of Economics.
  3. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  4. Burkhard Heer, 2000. "Employment And Welfare Effects Of A Two-Tier Unemployment Compensation System," Computing in Economics and Finance 2000 3, Society for Computational Economics.
  5. Abraham Arpad & Nicola Pavoni, 2004. "Efficient Allocations, with Moral Hazard and Hidden Borrowing and Lending," Levine's Bibliography 122247000000000138, UCLA Department of Economics.
  6. Atila Abdulkadiroglu & Burhanettin Kuruscu & Aysegul Sahin, 2002. "Unemployment Insurance and the Role of Self-Insurance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 681-703, July.
  7. 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.
  8. Fredriksson, Peter & Holmlund, Bertil, 1998. "Optimal Unemployment Insurance in Search Equilibrium," Working Paper Series 1998:2, Uppsala University, Department of Economics.
  9. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September.
  10. McCormick, Barry, 1997. "Regional unemployment and labour mobility in the UK," European Economic Review, Elsevier, vol. 41(3-5), pages 581-589, April.
  11. Engen, Eric M. & Gruber, Jonathan, 2001. "Unemployment insurance and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 545-579, June.
  12. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  13. 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.
  14. Cullen, Julie Berry & Gruber, Jonathan, 2000. "Does Unemployment Insurance Crowd Out Spousal Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 546-72, July.
  15. 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.
  16. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
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Cited by:
  1. Marcus Hagedorn & Ashok Kaul, 2004. "An Adverse Selection Model of Optimal Unemployment Insurance," Computing in Economics and Finance 2004 154, Society for Computational Economics.
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving incentives in unemployment insurance: A review of recent research," Working Paper Series 2003:5, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Holzner, Christian & Meier, Volker & Werding, Martin, 2010. "Time limits in a two-tier unemployment benefit scheme under involuntary unemployment," Munich Reprints in Economics 19408, University of Munich, Department of Economics.
  4. Peter Fredriksson & Bertil Holmlund, 2003. "Optimal Unemployment Insurance Design: Time Limits, Monitoring, or Workfare?," CESifo Working Paper Series 1019, CESifo Group Munich.
  5. Hassler, John & Rodríguez Mora, José Vicente, 2007. "Unemployment insurance design: inducing moving and retraining," Discussion Paper Series In Economics And Econometrics 0702, Economics Division, School of Social Sciences, University of Southampton.
  6. Christian Holzner & Volker Meier & Martin Werding, 2004. "Time Limits on Welfare Use under Involuntary Unemployment," CESifo Working Paper Series 1220, CESifo Group Munich.

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