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Productivity insurance: The role of unemployment benefits in a multi-sector model

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  • Fuller, David L.
  • Kudlyak, Marianna
  • Lkhagvasuren, Damba

Abstract

We construct a multi-sector search and matching model where the unemployed receives idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits – productivity insurance while unemployed. For plausible parameterizations unemployment benefits increase per-worker productivity. In addition, the welfare-maximizing benefit level decreases as moving costs increase.

Suggested Citation

  • Fuller, David L. & Kudlyak, Marianna & Lkhagvasuren, Damba, 2014. "Productivity insurance: The role of unemployment benefits in a multi-sector model," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 39-53.
  • Handle: RePEc:eee:dyncon:v:47:y:2014:i:c:p:39-53
    DOI: 10.1016/j.jedc.2014.07.015
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Productivity insurance: the role of unemployment benefits in a multi-sector model
      by Christian Zimmermann in NEP-DGE blog on 2013-09-28 07:47:04

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    More about this item

    Keywords

    Unemployment insurance; Search; Mobility; Productivity; Multi-sector model; Sectoral mismatch;
    All these keywords.

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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