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Re-entitlement effects with duration-dependent unemployment insurance in a stochastic matching equilibrium

  • Coles, Melvyn
  • Masters, Adrian

In the context of a standard equilibrium matching framework, this paper considers how a duration dependent unemployment insurance (UI) system affects the dynamics of unemployment and wages in an economy subject to stochastic job-destruction shocks. It establishes that re-entitlement effects induced by a finite duration UI program generate intertemporal transfers from firms that hire in future booms to firms that hire in current recessions. These transfers imply a net hiring subsidy in recessions which stabilizes unemployment levels over the cycle

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 9 (September)
Pages: 2879-2898

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:9:p:2879-2898
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