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A Positive Theory Of Geographic Mobility And Social Insurance

  • John Hassler
  • José V. Rodríguez Mora
  • Kjetil Storesletten
  • Fabrizio Zilibotti

This article presents a tractable dynamic general equilibrium model explaining cross-country data on geographical mobility, unemployment, and labor market institutions. Rational forward-looking agents vote on unemployment insurance (UI). Agents with higher moving costs (larger attachment to their location) prefer more generous UI. Attachment is assumed to increase with the duration of residence. UI mitigates incentives for moving and increases, therefore, the fraction of attached agents and the political support for UI. This self-reinforcing mechanism can yield two steady-states: one "European" and one "American." The former (latter) features high (low) unemployment, low (high) geographical mobility, and high (low) UI. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 46 (2005)
Issue (Month): 1 (02)
Pages: 263-303

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Handle: RePEc:ier:iecrev:v:46:y:2005:i:1:p:263-303
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