Technological Change and Insuring Job Loss

We examine the role of technological change in shaping insurance to the unemployed. We integrate technological change, occupation choice, and employment risk into a Bewley-style economy to examine the optimal combination of retraining subsidies and public insurance transfers for unemployed workers. We find that the optimal policy introduces a retraining subsidy to unemployed workers and increases the generosity of transfers to the unemployed relative to current U.S. policy. The utilitarian government incorporates retraining subsidies as part of an optimal policy as they provide additional, longer run, consumption insurance after job loss while imposing only modest increases in distortionary taxes. In the absence of technological change, a utilitarian government sets a lower subsidy on the tuition cost of retraining as earnings declines after job loss are les persistent. (Copyright: Elsevier)