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Job duration and history dependent unemployment insurance

Listed author(s):
  • Andersen, Torben M
  • Ellermann-Aarslev, Christian
Registered author(s):

    Unemployment insurance schemes typically include eligibility conditions depending on the employment history of the unemployed. The literature on the design of unemployment insurance schemes has largely ignored this aspect, perhaps due to the implied history dependence and heterogeneity across otherwise identical workers. We develop an analytically tractable matching model permitting an analysis of the consequences of such history dependencies. Unemployed determine reservation durations to the jobs they find acceptable, and the stronger employment histories lead to higher reservation durations. Consequently, short-term jobs are only acceptable to unemployed with a weak employment history, while unemployed with a stronger employment history have higher reservation durations. This affects the equilibrium distribution of employment according to job durations; fewer short duration jobs are filled, but this also means that fewer are locked-into such jobs, and therefore more jobs with long durations are filled, although the net effect generally is to lower employment. Employment history contingencies this affect both the level and structure of employment. Equilibrium (un)employment depends not only on reservation durations, and a longer benefit duration combined with a decrease in the benefit level to retain reservation durations has a negative effect on employment.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12163.

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    Date of creation: Jul 2017
    Handle: RePEc:cpr:ceprdp:12163
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    1. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-399, April.
    2. Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
    3. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, 07.
    4. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    5. Miquel Faig & Min Zhang, 2012. "Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 41-56, January.
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