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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
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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  1. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  2. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
  3. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  4. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  5. 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.
  6. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  7. Carl Davidson & Stephen A. Woodbury, . "Optimal Unemployment Insurance," Upjohn Working Papers and Journal Articles cdsaw1997, W.E. Upjohn Institute for Employment Research.
  8. Carruth, Alan A & Oswald, Andrew J, 1985. "Miners' Wages in Post-war Britain: An Application of a Model of Trade Union Behaviour," Economic Journal, Royal Economic Society, vol. 95(380), pages 1003-20, December.
  9. Gary D. Hansen & Ayse Imrohoroglu, 1990. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," UCLA Economics Working Papers 583, UCLA Department of Economics.
  10. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  11. Wadsworth, Jonathan, 1991. "Unemployment Benefits and Search Effort in the UK Labour Market," Economica, London School of Economics and Political Science, vol. 58(229), pages 17-34, February.
  12. Diamond, Peter A., 1980. "An alternative to steady-state comparisons," Economics Letters, Elsevier, vol. 5(1), pages 7-9.
  13. 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.
  14. Wang, Cheng & Williamson, Steve, 1996. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," Staff General Research Papers 5088, Iowa State University, Department of Economics.
  15. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  16. 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.
  17. 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.
  18. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  19. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
  20. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  21. 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.
  22. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  23. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  24. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  25. 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.
  26. 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.
  27. 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.
  28. Jonathan Wadsworth, 1992. "Unemployment Benefits and Labour Market Transitions in Britain," CEP Discussion Papers dp0073, Centre for Economic Performance, LSE.
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