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Equilibrium Unemployment Insurance

  • Hassler, John

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Mora, José

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Storesletten, Kjetil

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Zilibotti, Fabrizio

    ()

    (Institute for International Economic Studies, Stockholm University)

In this paper, we introduce a positive theory of unemployement insurance into a dynamic overlapping generations model with search-matching frictions and on-the-job learning-by-doing. The model shows that societies populated by identical rational agents, but differing in the initial distribution of human capital accross agents, may choose very different unemployment insurance levels into a politico-economic equilibrium. The interaction between the political decision about the level of the unemployment insurance and the optimal search behavior of the unemployed gives rise to a self-reinforcing mechanism which may generate multiple steady-state equilibria. In particular, a European-type steady-state with high unemployment, low employment turnover and high insurance can co-exist with an American-type steady state with low unemployment, high employment turnover and low unemployment insurance. A calibrated version of the model features two distinct steady-state equilibria with unemployment levels and duration rates resembling those of the US and Europe respectively.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 665.

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Length: 55 pages
Date of creation: 28 Jan 1999
Date of revision:
Handle: RePEc:hhs:iiessp:0665
Contact details of provider: Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/

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  3. Fallick, Bruce Chelimsky, 1991. "Unemployment Insurance and the Rate of Re-employment of Displaced Workers," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 228-35, May.
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  8. Topel, Robert, 1990. "Specific capital and unemployment: Measuring the costs and consequences of job loss," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 181-214, January.
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  13. Gomes, Joao F & Greenwood, Jeremy & Rebelo, Sérgio, 1997. "Equilibrium Unemployment," CEPR Discussion Papers 1602, C.E.P.R. Discussion Papers.
  14. Hansen, G.D. & Imrohoroglu, A., 1990. "The Role Of Unemployment Insurance In An Economy With Liquidity Constraints And Moral Hazard," Papers 21, California Los Angeles - Applied Econometrics.
  15. Daniel S. Hamermesh, 1987. "What Do We Know About Worker Displacement in the U.S.?," NBER Working Papers 2402, National Bureau of Economic Research, Inc.
  16. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  17. M. Burda & A. Mertens, 1998. "Wages and Worker Displacement in Germany," SFB 373 Discussion Papers 1998,24, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  18. Thomas, Jonathan M, 1996. "An Empirical Model of Sectoral Movements by Unemployed Workers," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 126-53, January.
  19. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," SSE/EFI Working Paper Series in Economics and Finance 178, Stockholm School of Economics.
  20. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  21. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November.
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  23. Pallage, Stephane & Zimmermann, Christian, 2001. "Voting on Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 903-23, November.
  24. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
  25. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  26. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  27. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
  28. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  29. Addison, John T & Portugal, Pedro, 1987. "On the Distributional Shape of Unemployment Duration," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 521-26, August.
  30. Douglas L. Kruse, 1988. "International trade and the labor market experience of displaced workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(3), pages 402-417, April.
  31. Stephane Pallage & Christian Zimmermann, 1999. "Heterogeneous Labor Markets and the Generosity Towards the Unemployed: An International Perspective," Cahiers de recherche CREFE / CREFE Working Papers 88, CREFE, Université du Québec à Montréal.
  32. Di Tella, R. & MacCulloch, R., 1996. "An Emprirical Study of Unemployment Benefit Preferences," Economics Series Working Papers 99179, University of Oxford, Department of Economics.
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