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Optimal Unemployment Insurance with Variable Skill Levels

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  • Andreas Pollak

Abstract

I study the consequences of heterogeneity of skills for efficient unemployment insurance design, using a principal-agent setup. Agents' wages depend on individual productivity and the quality of the worker-firm match. Productivity declines during unemployment and increases on the job. For plausible parameter constellations, more productive agents experience shorter unemployment durations and higher productivity growth under the optimal contract. Benefits do not only depend on employment histories, but also on the skills reported by the agent. Agents are rewarded for accepting jobs that are in line with the insurer's expectations, meaning that agents typically consume more if they find better jobs.

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  • Andreas Pollak, 2008. "Optimal Unemployment Insurance with Variable Skill Levels," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 696-726, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200812)164:4_696:ouiwvs_2.0.tx_2-q
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    Cited by:

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    2. Wang, Cheng & Williamson, Stephen, 1996. "Unemployment insurance with moral hazard in a dynamic economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 1-41, June.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)

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