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Unemployment insurance and the business cycle: prolong benefit entitlements in bad times?

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  • Moyen, Stéphane
  • Stähler, Nikolai

Abstract

The aim of this paper is to study the optimal duration of unemployment benefit entitlement duration across the business cycle. We wonder if the entitlement duration should be prolonged in bad and shortened in good times. Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely or even helps to reduce inefficiencies there. If, however, the labor market is quite inflexible already, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the US but not in Europe. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,30.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp1:200930

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Keywords: Unemployment insurance; entitlement duration; business cycle;

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Citations

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Cited by:
  1. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2011. "Optimal Unemployment Insurance Over the Business Cycle," CEP Discussion Papers dp1078, Centre for Economic Performance, LSE.
  2. Nikolai Stähler & Carlos Thomas, 2011. "FiMod - a DSGE model for fiscal policy simulations," Banco de Espa�a Working Papers 1110, Banco de Espa�a.
  3. Kremer, Jana & Stähler, Nikolai, 2013. "Structural and cyclical effects of tax progression," Discussion Papers 15/2013, Deutsche Bundesbank, Research Centre.
  4. Schwarzmüller, Tim & Stähler, Nikolai, 2011. "Reforming the labor market and improving competitiveness: An analysis for Spain using FiMod," Discussion Paper Series 1: Economic Studies 2011,28, Deutsche Bundesbank, Research Centre.
  5. Julien Albertini & Xavier Fairise, 2013. "Search frictions, real wage rigidities and the optimal design of unemployment insurance," TEPP Working Paper 2013-07, TEPP.
  6. Julien Albertini & Arthur Poirier, 2014. "Unemployment benefits extensions at the zero lower bound on nominal interest rate," SFB 649 Discussion Papers SFB649DP2014-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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