Home Production and the Optimal Rate of Unemployment Insurance
AbstractIn this paper, we incorporate home production into a quantitative model of unemployment and show that realistic levels of home production have a signifi- cant impact on the optimal unemployment insurance rate. Motivated by recently documented empirical facts, we augment an incomplete markets model of unem- ployment with a home production technology, which allows unemployed workers to use their extra non-market time as partial insurance against the drop in income due to unemployment. In the benchmark model, we find that the optimal replacement rate in the presence of home production is roughly 40% of wages, which is 40% lower than the no home production model’s optimal replacement rate of 65%. The 40% optimal rate is also close to the estimated rate in practice. The fact that home production makes a significant difference in the optimal unemployment insurance rate is robust to a variety of parameterizations and alternative model environments.
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Bibliographic InfoPaper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1220.
Date of creation: 2012
Date of revision:
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Unemployment insurance; home production; incomplete markets; self-insurance;
Find related papers by JEL classification:
- D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-DGE-2012-09-03 (Dynamic General Equilibrium)
- NEP-IAS-2012-09-03 (Insurance Economics)
- NEP-LAB-2012-09-03 (Labour Economics)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Home Production and the Optimal Rate of Unemployment Insurance
by Christian Zimmermann in NEP-DGE blog on 2012-09-05 13:33:18
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