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The elasticity of the unemployment rate with respect to benefits

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  • Kai Christoffel
  • Keith Kuester

Abstract

If the Mortensen and Pissarides model with efficient bargaining is calibrated to replicate the fluctuations of unemployment over the business cycle, it implies a far too strong rise of the unemployment rate when unemployment benefits rise. This paper explores an alternative, right-to-manage bargaining scheme. This also generates the right degree of fluctuations of unemployment but at the same time implies a reasonable elasticity of unemployment with respect to benefits.

Suggested Citation

  • Kai Christoffel & Keith Kuester, 2008. "The elasticity of the unemployment rate with respect to benefits," Working Papers 08-15, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:08-15
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    References listed on IDEAS

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    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    3. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    4. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 865-887, July.
    5. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    6. Antonella Trigari, 2006. "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 923, European Central Bank.
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    Cited by:

    1. Sunakawa, Takeki, 2012. "Efficiency in a search and matching model with right-to-manage bargaining," Economics Letters, Elsevier, vol. 117(3), pages 679-682.
    2. Brown, Alessio & Kohlbrecher, Britta & Merkl, Christian & Snower, Dennis J., 2016. "The effects of productivity and benefits on unemployment: Breaking the link," MERIT Working Papers 032, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Aaron Schwartz & Roger Magoulas & Melinda Buntin, 2013. "Tracking Labor Demand with Online Job Postings: The Case of Health IT Workers and the HITECH Act," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(4), pages 941-968, October.

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    Keywords

    Unemployment;

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