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Optimal Life Cycle Unemployment Insurance

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  • Michelacci, Claudio
  • Ruffo, Hernán

Abstract

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.

Suggested Citation

  • Michelacci, Claudio & Ruffo, Hernán, 2014. "Optimal Life Cycle Unemployment Insurance," CEPR Discussion Papers 10167, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10167
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    References listed on IDEAS

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    1. Pavoni, Nicola & Setty, Ofer & Violante, Giovanni L., 2010. "Search and Work in Optimal Welfare Programs," Foerder Institute for Economic Research Working Papers 275749, Tel-Aviv University > Foerder Institute for Economic Research.
    2. Krueger, Alan B. & Mueller, Andreas, 2010. "Job search and unemployment insurance: New evidence from time use data," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 298-307, April.
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    16. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    17. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    18. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, August.
    19. Gueorgui Kambourov & Iourii Manovskii, 2008. "Rising Occupational And Industry Mobility In The United States: 1968-97," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 41-79, February.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal Life Cycle Unemployment Insurance
      by Christian Zimmermann in NEP-DGE blog on 2014-10-28 19:53:46

    Citations

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    Cited by:

    1. Gonzalez-Rozada, Martin & Ruffo, Hernán, 2016. "Optimal unemployment benefits in the presence of informal labor markets," Labour Economics, Elsevier, vol. 41(C), pages 204-227.
    2. Bennmarker, Helge & Skans, Oskar Nordström & Vikman, Ulrika, 2013. "Workfare for the old and long-term unemployed," Labour Economics, Elsevier, vol. 25(C), pages 25-34.
    3. Sebastian Koehne & Moritz Kuhn, 2015. "Should unemployment insurance be asset-tested?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 575-592, July.
    4. Cozzi, Marco & Fella, Giulio, 2016. "Job displacement risk and severance pay," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 166-181.
    5. Javier Fernandez-Blanco, 2017. "Unemployment Risks and Intra-Household Insurance," 2017 Meeting Papers 478, Society for Economic Dynamics.
    6. Daniel Harenberg & Alexander Ludwig, 2019. "Idiosyncratic Risk, Aggregate Risk, And The Welfare Effects Of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 661-692, May.
    7. Martin Gonzalez-Rozada & Hernan Ruffo, 2014. "The Effects of Unemployment Insurance Under High Informality: Evidence from Argentina," Department of Economics Working Papers wp201403, Universidad Torcuato Di Tella.
    8. Carolina Fugazza, 2018. "Anatomy of Unemployment Risk," Working papers 048, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    9. Jin, L. & Ziebarth, N.R., 2015. "Sleep and Human Capital: Evidence from Daylight Saving Time," Health, Econometrics and Data Group (HEDG) Working Papers 15/27, HEDG, c/o Department of Economics, University of York.
    10. Nicholas Trachter & Hernan Ruffo & Facundo Piguillem, 2012. "Unemployment Insurance in a Life Cycle General Equilibrium Model with Human Capital," 2012 Meeting Papers 1046, Society for Economic Dynamics.
    11. Etienne Lale, 2019. "Labor-market Frictions, Incomplete Insurance and Severance Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 411-435, January.
    12. Ofer Setty: Tel Aviv University, 2011. "Unemployment Accounts," 2011 Meeting Papers 204, Society for Economic Dynamics.
    13. Martin Gonzalez-Rozada & Hernan Ruffo, 2014. "The Effects of Unemployment Insurance Under High Informality: Evidence from Argentina," Department of Economics Working Papers 2014_3, Universidad Torcuato Di Tella.
    14. Kim, Jiwoon, 2018. "The Effect of Enhancing Unemployment Benefits in Korea: Wage Replacement Rate vs. Maximum Benefit Duration," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 40(3), pages 1-44.
    15. Acedański, Jan, 2016. "Youth unemployment and welfare gains from eliminating business cycles — The case of Poland," Economic Modelling, Elsevier, vol. 57(C), pages 248-262.
    16. Luz Adriana Flórez, 2014. "Optimal Policy with Informal Sector and Endogenous Savings," Borradores de Economia 833, Banco de la Republica de Colombia.
    17. Campos, Rodolfo G. & Reggio, Iliana, 2014. "Measurement error in imputation procedures," Economics Letters, Elsevier, vol. 122(2), pages 197-202.
    18. Lugilde, Alba & Bande, Roberto & Riveiro, Dolores, 2017. "Precautionary Saving: a review of the theory and the evidence," MPRA Paper 77511, University Library of Munich, Germany.
    19. repec:udt:wpecon:2016-03 is not listed on IDEAS

    More about this item

    Keywords

    insurance; search; unemployment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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