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Optimal Unemployment Insurance with Monitoring and Sanctions

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  • Jan Boone
  • Peter Fredriksson
  • Bertil Holmlund
  • Jan C. van Ours
  • Jan C. van Ours

Abstract

This paper analyzes the design of optimal unemployment insurance in a search equilibrium framework where search e¤ort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient. We find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs; this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt. The optimal sanction rates implied by our calibrated model are much higher than the sanction rates typically observed in European labor markets.

Suggested Citation

  • Jan Boone & Peter Fredriksson & Bertil Holmlund & Jan C. van Ours & Jan C. van Ours, 2001. "Optimal Unemployment Insurance with Monitoring and Sanctions," CESifo Working Paper Series 616, CESifo.
  • Handle: RePEc:ces:ceswps:_616
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Manning, Alan, 2009. "You can't always get what you want: The impact of the UK Jobseeker's Allowance," Labour Economics, Elsevier, vol. 16(3), pages 239-250, June.
    2. Arslan, Yavuz & Taskin, Temel, 2011. "Explaining the gender gaps in unemployment across OECD countries," MPRA Paper 34873, University Library of Munich, Germany.
    3. Andrey Launov & Irene Schumm & Klaus Walde, 2008. "Estimating insurance and incentive effects of labour market reforms," CDMA Conference Paper Series 0813, Centre for Dynamic Macroeconomic Analysis.
    4. Etienne Lehmann & Bruno Van Der Linden, 2007. "On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 867-884, October.
    5. Setty, Ofer, 2009. "Optimal Unemployment Insurance with Monitoring," MPRA Paper 18188, University Library of Munich, Germany.
    6. Wang, Cheng & Williamson, Stephen, 1996. "Unemployment insurance with moral hazard in a dynamic economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 1-41, June.
    7. Emmanuel Duguet & Florent Frémigacci & Yannick L’Horty, 2008. "Indemnisation du chômage et retour à l’emploi : un examen économétrique," Documents de recherche 08-07, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    8. Lollivier, Stefan & Rioux, Laurence, 2005. "A Structural Non-Stationary Model of Job Search: Stigmatization of the Unemployed by Job Offers or Wage Offers?," CEPR Discussion Papers 5108, C.E.P.R. Discussion Papers.
    9. Kai-Uwe Müller & Viktor Steiner, 2008. "Imposed Benefit Sanctions and the Unemployment-to-Employment Transition: The German Experience," Discussion Papers of DIW Berlin 792, DIW Berlin, German Institute for Economic Research.
    10. Müller, Kai-Uwe, 2007. "Observed and unobserved determinants of unemployment insurance benefit sanctions in Germany: Evidence from matched individual and regional administrative data," Discussion Papers, Research Unit: Labor Market Policy and Employment SP I 2007-107, WZB Berlin Social Science Center.
    11. Cockx, Bart & Dejemeppe, Muriel, 2007. "Is the Notification of Monitoring a Threat to the Unemployed? A Regression Discontinuity Approach," IZA Discussion Papers 2854, Institute of Labor Economics (IZA).
    12. Müller, Kai-Uwe & Steiner, Viktor, 2008. "Imposed Benefit Sanctions and the Unemployment-to-Employment Transition: The German Experience," IZA Discussion Papers 3483, Institute of Labor Economics (IZA).

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