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A positive theory of geographic mobility and social insurance

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  • John Hassler
  • José V. Rodríguez Mora
  • Kjetil Storesletten
  • Fabrizio Zilibotti

Abstract

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states-one 'European' steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one 'American' steady-state featuring low unemployment, high mobility and low unemployment insurance.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 604.

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Date of creation: Aug 2001
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Handle: RePEc:upf:upfgen:604

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Web page: http://www.econ.upf.edu/

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Keywords: Employment; migration; geographical mobility; political equilibrium; unemployment insurance; voting;

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  1. Krieg, Randall G., 1997. "Occupational change, employer change, internal migration, and earnings," Regional Science and Urban Economics, Elsevier, vol. 27(1), pages 1-15, February.
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  13. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(4), pages 798-812, August.
  14. 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.
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  16. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
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