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Optimal Unemployment Insurance in Search Equilibrium

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  • Fredriksson, P.
  • Holmlund, B.

Abstract

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.

Suggested Citation

  • Fredriksson, P. & Holmlund, B., 1998. "Optimal Unemployment Insurance in Search Equilibrium," Papers 1998-2, Uppsala - Working Paper Series.
  • Handle: RePEc:fth:uppaal:1998-2
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    UNEMPLOYMENT ; UNEMPLOYMENT INSURANCE ; JOB SEARCH;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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