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Two Equivalence Results between Unemployment Insurance and Wage Insurance

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  • Anchi Xia

Abstract

In this short note, I show that in a McCall (1970) model with risk-neutral agents, a system of wage insurance combined with unemployment insurance financed by a lump-sum tax on the employed can be replicated -- in the ex ante sense -- by a system of unemployment insurance that depends on the agent's wage when last employed and a tax that depends on the agent's wage when employed. This holds with or without endogenous search when unemployed. I also show that wage insurance is not binding until the last earned wage exceeds a threshold, which may be of independent interest.

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  • Anchi Xia, 2026. "Two Equivalence Results between Unemployment Insurance and Wage Insurance," Papers 2605.28562, arXiv.org.
    • Handle: RePEc:arx:papers:2605.28562
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    References listed on IDEAS

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    1. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
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