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Job duration and history dependent unemployment insurance

Author

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  • Andersen, Torben M
  • Ellermann-Aarslev, Christian

Abstract

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.

Suggested Citation

  • Andersen, Torben M & Ellermann-Aarslev, Christian, 2017. "Job duration and history dependent unemployment insurance," CEPR Discussion Papers 12163, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12163
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    References listed on IDEAS

    as
    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, July.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Employment conditions; Employment history; job search; Unemployment insurance;

    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
    • 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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