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A Positive Theory of Geographic Mobility and Social Insurance

  • John Hassler
  • José Vicente Rodríguez Mora
  • Kjetil Storesletten
  • Fabrizio Zilibotti

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states -- one "European" steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one "American" steadystate featuring low unemployment, high mobility and low unemployment insurance.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 86.

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Date of creation: Sep 2015
Date of revision:
Handle: RePEc:bge:wpaper:86
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  18. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
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