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Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits

  • Marimon, Ramon
  • Zilibotti, Fabrizio

The authors develop an equilibrium search-matching model with risk-neutral agents and two-sided ex-ante heterogeneity. Unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job. They show, through calibrations, how the mere difference on unemployment insurance, when countries experience a common skilled-biased technological shock, may result in differences in unemployment, productivity growth, and wage inequality. These results are consistent with the contrasting performance of the labor market in Europe and the United States in the last twenty-five years. The model is used to address some political economy issues.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 109 (1999)
Issue (Month): 455 (April)
Pages: 266-91

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Handle: RePEc:ecj:econjl:v:109:y:1999:i:455:p:266-91
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