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Optimal Unemployment Insurance in a Matching Equilibrium

  • Melvyn Coles

    (Instituci� Catalana de Recerca i Estudis Avan�ats and Instituto de An�lisis Econ�mico)

  • Adrian Masters

    (State University of New York at Albany)

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.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 24 (2006)
Issue (Month): 1 (January)
Pages: 109-138

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Handle: RePEc:ucp:jlabec:v:24:y:2006:i:1:p:109-138
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  2. Melvyn Coles & Adrian Masters, 2004. "Duration-Dependent Unemployment Insurance Payments and Equilibrium Unemployment," Economica, London School of Economics and Political Science, vol. 71, pages 83-97, 02.
  3. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
  4. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  5. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  6. Carl Davidson & Stephen A. Woodbury, . "Optimal Unemployment Insurance," Upjohn Working Papers and Journal Articles cdsaw1997, W.E. Upjohn Institute for Employment Research.
  7. Adrian Masters & Melvyn Coles, 2004. "Duration Dependent Unemployment Insurance and Stabilisation Policy," Discussion Papers 04-10, University at Albany, SUNY, Department of Economics.
  8. Melvyn Cole & Randall Wright, . "A Dynamic Equilibrium Model of Search, Bargaining, and Money," CARESS Working Papres 97-9, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  9. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  10. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
  11. Harold L. Cole & Richard Rogerson, 1996. "Can the Mortonson-Pissarides matching model match the business cycle facts?," Staff Report 224, Federal Reserve Bank of Minneapolis.
  12. Fredriksson, Peter & Holmlund, Bertil, 1998. "Optimal Unemployment Insurance in Search Equilibrium," Working Paper Series 1998:2, Uppsala University, Department of Economics.
  13. Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-31, May.
  14. 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.
  15. Coles, Melvyn G & Hildreth, Andrew K G, 2000. "Wage Bargaining, Inventories, and Union Legislation," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 273-93, April.
  16. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  17. James Albrecht & Susan Vroman, 2005. "Equilibrium Search With Time-Varying Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 115(505), pages 631-648, 07.
  18. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  19. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
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