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On-the-job search equilibrium with endogenous unemployment benefits

  • Chéron, Arnaud
  • Langot, François

This paper develops an on-the-job search model with wage posting where unemployment benefits are proportional to past wages. We emphasize that this contributes to increasing the reservation wages of unemployed workers and introduces a feedback effect of the distribution of wages on the distribution of unemployment benefits. We show that the model predictions are consistent with some stylized French facts and quantify the impact of inefficient rejections of low-wage offers by the unemployed. We find that, by reducing the indexing of unemployment benefits to previous earnings and increasing lump-sum transfers, it is possible to increase both employment and welfare.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 2 (April)
Pages: 383-391

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Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:383-391
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2008. "A Quantitative Evaluation of Payroll Tax Subsidies For Low-Wage Workers: An Equilibrium Search Approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270295, HAL.
  2. Jesper Bager & Francois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "A Feasible Equilibrium Search Model of Individual Wage Dynamics with Experience Accumulation," 2006 Meeting Papers 679, Society for Economic Dynamics.
  3. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," NBER Working Papers 6038, National Bureau of Economic Research, Inc.
  4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  5. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
  6. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To Match or Not to Match? Optimal Wage Policy With Endogenous Worker Search Intensity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 297-330, April.
  7. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  8. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  9. Christian Bontemps & Jean-Marc Robin & Gérard J. Van Den Berg, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," Working Papers 249986, Institut National de la Recherche Agronomique, France.
  10. Burdett, Ken & Carrillo-Tudela, Carlos & Coles, Melvyn, 2009. "Human Capital Accumulation and Labour Market Equilibrium," IZA Discussion Papers 4215, Institute for the Study of Labor (IZA).
  11. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," NBER Working Papers 7352, National Bureau of Economic Research, Inc.
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