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Part-Time Unemployment and Optimal Unemployment Insurance

  • Susanne Ek
  • Bertil Holmlund

A significant fraction of the labor force consists of employed workers who are part-time unemployed (underemployed) in the sense that they are unable to work as much as they prefer. This paper develops a search and matching model to study the design of optimal unemployment insurance in an economy with unemployment as well as part-time unemployment. Part-time unemployment provides income insurance and serves as a stepping stone to full-time jobs. Unemployment benefits for part-timers increase the outflow from unemployment to part-time work but reduce the outflow from part-time work to fulltime employment. We examine the optimal structure of benefits for unemployed and underemployed workers. The results indicate non-negligible welfare gains associated with time limits for unemployment benefits as well as for part-time benefits. The welfare gains from optimal UI are larger when wages are fixed than when they are flexible.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3370.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3370
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