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Efficient Unemployment Insurance Time Path

  • Blumkin, Tomer
  • Hadar, Yossi
  • Yashiv, Eran
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    The Paper examines the time sequencing of UI benefits in a general equilibrium framework, with random matching and endogenously determined wages. A key feature of the model is that policymakers exploit random matching to produce some assortative matching through UI policy. The Paper considers a mechanism whereby a declining UI time profile makes unemployed workers relatively choosier at the beginning of their unemployment spell. Hence they tend to continue to search unless a sufficiently attractive offer is received. Later on, the reservation wage drops and agents are willing to take less attractive job offers. Firms respond by introducing endogenous market segmentation. In equilibrium more productive firms offer higher wages facing lower vacancy risk, whereas less productive firms offer lower wages and face higher vacancy risk. The role of a declining profile UI regime is to insure enough heterogeneity among workers, so as to obtain enhanced matching with heterogenous firms. The longer the duration, the higher the degree of induced heterogeneity. Such optimal UI policy is shown to crucially depend on the nature of technological dispersion.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3810.

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    Date of creation: Mar 2003
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    Handle: RePEc:cpr:ceprdp:3810
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    1. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
    2. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
    4. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-91, April.
    5. Edi Karni, 1999. "Optimal Unemployment Insurance: A Survey," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 442-465, October.
    6. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
    7. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
    8. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
    9. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
    10. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
    11. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
    12. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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