On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation
AbstractThis paper studies the optimal timing of unemployment insurance subsidies in a McCall search model. Risk-averse workers sequentially sample random job opportunities. Our model distinguishes unemployment subsidies from consumption during unemployment by allowing workers to save and borrow freely. When the insurance agency faces a group of homogeneous workers solving stationary search problems, the optimal subsidies are independent of unemployment duration. In contrast, when workers are heterogeneous or when human capital depreciates during the spell, the optimal subsidy is no longer constant. We explore the main determinants of the shape of the optimal subsidy schedule, isolating forces for subsidies to optimally rise or fall with duration.
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Date of creation: May 2006
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Find related papers by JEL classification:
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-20 (All new papers)
- NEP-DGE-2006-05-20 (Dynamic General Equilibrium)
- NEP-HRM-2006-05-20 (Human Capital & Human Resource Management)
- NEP-LAB-2006-05-20 (Labour Economics)
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