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Unemployment Insurance and Training in an Equilibrium Matching Model with Heterogeneous Agents

  • Bruno Van Der Linden

    (Crest)

This paper develops a joint evaluation of vocational training and unemployment insurance.This allows to analyze how these schemes complement each other from theviewpoints of labor market indicators and of welfare. For this purpose, a generalequilibrium matching model is built where workers are heterogeneous and risk averse.Heterogeneity allows to look at the distribution of the effects. Job search effort andwages are endogenous in order to deal with the induced effects of these schemes. Thenet effect of these training programs appears to be gloomy. However, their impacton employment can be deeply affected by the design of passive policies. A decliningtime profile of benefit payments dominates a scheme with a constant replacement ratio.However, the optimal expected length of payment of ‘high’ benefits can vary alot in the population. A reform that would relate this expected duration to searcheffort does not appear to produce substantial effects on any of the evaluation criteria.Performance indicators of the labor market and welfare criteria often vary in oppositedirections after a reform. This questions the widespread focus on labor marketindicators to guide the design of institutional reforms.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2003-01.

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Date of creation: 2003
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Handle: RePEc:crs:wpaper:2003-01
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