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A Positive Theory of Geographic Mobility and Social Insurance

Author

Listed:
  • John Hassler
  • José V. Rodriguez Mora
  • Kjetil Storesletten
  • Fabrizio Zilibotti

Abstract

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 e.ects 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.

Suggested Citation

  • John Hassler & José V. Rodriguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2002. "A Positive Theory of Geographic Mobility and Social Insurance," CESifo Working Paper Series 791, CESifo.
  • Handle: RePEc:ces:ceswps:_791
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pica Giovanni, 2010. "Capital Markets Integration and Labor Market Institutions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-57, March.
    2. Neugart, Michael, 2005. "Unemployment insurance: The role of electoral systems and regional labour markets," European Journal of Political Economy, Elsevier, vol. 21(4), pages 815-829, December.
    3. Åsa Rosén & Etienne Wasmer, 2005. "Higher Education Levels, Firms’ Outside Options and the Wage Structure," LABOUR, CEIS, vol. 19(4), pages 621-654, December.
    4. Elizabeth Caucutt & Thomas Cooley & Nezih Guner, 2013. "The farm, the city, and the emergence of social security," Journal of Economic Growth, Springer, vol. 18(1), pages 1-32, March.
    5. Hassler, John & Rodríguez Mora, José V., 2008. "Unemployment insurance design: Inducing moving and retraining," European Economic Review, Elsevier, vol. 52(5), pages 757-791, July.
    6. Mats Persson & Agnar Sandmo, 2005. "Taxation and Tournaments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 543-559, October.
    7. Pawel Kaczmarczyk, 2013. "Are immigrants a burden for the state budget? Review paper," EUI-RSCAS Working Papers p0356, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    8. Wasmer, Etienne, 2002. "Interpreting Europe and US Labor Markets Differences: The Specificity of Human Capital Investments," IZA Discussion Papers 549, Institute of Labor Economics (IZA).
    9. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2015. "Uncertainty and the Politics of Employment Protection," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 209-267.
    10. Lindbeck, Assar, 2002. "The European Social Model: Lessons for Developing Countries," Seminar Papers 714, Stockholm University, Institute for International Economic Studies.
    11. Wasmer, Etienne, 2003. "Interpreting European and US Labour Market Differences: The Specificity of Human Capital Investments," CEPR Discussion Papers 3780, C.E.P.R. Discussion Papers.
    12. Niepelt, Dirk, 2003. "Intra-Generational Conflict: The Role of Balanced Budget Rules," Seminar Papers 722, Stockholm University, Institute for International Economic Studies.
    13. Niepelt, Dirk, 2003. "Tax Evasion Dynamics," Seminar Papers 721, Stockholm University, Institute for International Economic Studies.
    14. John Hassler & José V. Rodriguez Mora, 2002. "Should UI Benefits Really Fall over Time?," CESifo Working Paper Series 804, CESifo.
    15. Hassler, John & Rodríguez Mora, José Vicente, 2007. "Unemployment insurance design: inducing moving and retraining," Discussion Paper Series In Economics And Econometrics 0702, Economics Division, School of Social Sciences, University of Southampton.

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