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Optimal Unemployment Insurance in Search Equilibrium

  • Fredriksson, P.
  • Holmlund, B.

Should unemployment compensation be paid indefinitely at a fixed rate or should it decline (or increase) over a worker's unemployment spell? We examine these issues using an equilibrium model of search unemployment. The model features worker-firm bargaining over wages, free entry of new jobs, and endogenous serach effort among the unemployed. The main result is that an optimal insurance program implies a declining sequence of unemployment compensation over the spell of unemployment.

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Paper provided by Uppsala - Working Paper Series in its series Papers with number 1998-2.

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Length: 33 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:uppaal:1998-2
Contact details of provider: Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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  2. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
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  7. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  8. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  9. Rebecca M. Blank & David Card, 1989. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," NBER Working Papers 2871, National Bureau of Economic Research, Inc.
  10. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
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  19. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  20. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-42, October.
  21. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
  22. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  23. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  24. Alan Carruth & Andrew Oswald, 1984. "Miners' Wages in Post-War Britain: An Application of a Model of Trade Union Behavior," Working Papers 558, Princeton University, Department of Economics, Industrial Relations Section..
  25. Mortensen, Dale T., 1996. "Unemployment insurance, labor-market dynamics, and social welfare A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 83-86, June.
  26. Jones, Stephen R G, 1989. "Job Research Methods, Intensity and Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 277-96, August.
  27. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-89, December.
  28. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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