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Productivity gains from unemployment insurance

  • Acemoglu, Daron
  • Shimer, Robert

This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the standard moral hazard effects of unemployment insurance. Our model economy captures the behavior of the U.S. labor market for high school graduates quite well. When unemployment insurance becomes more generous starting from the current U.S. levels, there is an increase in unemployment similar in magnitude to the micro-estimates, but because the composition of jobs also changes, total output and welfare increase as well.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 44 (2000)
Issue (Month): 7 (June)
Pages: 1195-1224

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Handle: RePEc:eee:eecrev:v:44:y:2000:i:7:p:1195-1224
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  27. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  28. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-66, December.
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