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Optimal Unemployment Insurance in a Matching Equilibrium

Author

Listed:
  • Melvyn Coles

    (Institució Catalana de Recerca i Estudis Avançats and Instituto de Análisis Económico)

  • Adrian Masters

    (State University of New York at Albany)

Abstract

This article considers optimal unemployment insurance (UI) in an equilibrium matching framework where wages are determined by strategic bargaining. It compares the outcome with the standard Nash bargaining approach, which can be interpreted as union wage bargaining with an insider/outsider distortion. It also shows that a coordinated policy approach, one that chooses job creation subsidies and UI optimally, generates a much greater welfare gain than a policy that simply varies UI payments by duration.

Suggested Citation

  • Melvyn Coles & Adrian Masters, 2006. "Optimal Unemployment Insurance in a Matching Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 109-138, January.
    • Handle: RePEc:ucp:jlabec:v:24:y:2006:i:1:p:109-138
    DOI: 10.1086/497820
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    References listed on IDEAS

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