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A life-cycle model of unemployment and disability insurance

The paper builds a life-cycle model of heterogeneous agents with search frictions, in which individuals choose a sequence of saving and labor supply faced with uncertainty in longevity, employment, health status and medical expenditures. Unemployed individuals decide search intensity and whether to apply for disability insurance (DI) benefits if eligible. We investigate, first, the effects of cash and Medicare benefits of the DI system on the life-cycle pattern of employment. Without in-kind benefits through Medicare, the DI coverage could fall by 30%. Second, the impact of a change in labor market conditions and roles of the DI are studied. A rise in exogenous job separation rates or a fall in job finding rates by 20% each can lead to a drop in employment rate by 1.7 and 2.1 percentage points, respectively. A model without the DI could underestimate the effect on employment by more than 30%.

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Paper provided by Hunter College Department of Economics in its series Economics Working Paper Archive at Hunter College with number 442.

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Date of creation: 2013
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Handle: RePEc:htr:hcecon:442
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  18. Eric French and John Jones, 2001. "The Effects of Health Insurance and Self-Insurance on Retirement Behavior," Computing in Economics and Finance 2001 24, Society for Computational Economics.
  19. Orazio Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and bumps in lifetime consumption," IFS Working Papers W95/14, Institute for Fiscal Studies.
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  25. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers 559, Federal Reserve Bank of Minneapolis.
  26. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the elderly save? the role of medical expenses," Working Paper Series WP-09-02, Federal Reserve Bank of Chicago.
  27. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 210-221, March.
  28. Selahattin Imrohoroglu & Sagiri Kitao, 2012. "Social Security Reforms: Benefit Claiming, Labor Force Participation, and Long-Run Sustainability," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 96-127, July.
  29. Karen A. Kopecky & Tatyana Koreshkova, 2014. "The Impact of Medical and Nursing Home Expenses on Savings," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 29-72, July.
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