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Part-Time Unemployment and Optimal Unemployment Insurance

  • Ek Spector, Susanne


    (Confederation of Swedish Enterprise)

  • Holmlund, Bertil


    (Uppsala University)

A significant fraction of the labor force consists of employed workers who are part-time unemployed (underemployed) in the sense that they are unable to work as much as they prefer. This paper develops a search and matching model to study the design of optimal unemployment insurance in an economy with unemployment as well as part-time unemployment. Part-time unemployment provides income insurance and serves as a stepping stone to full-time jobs. Unemployment benefits for part-timers increase the outflow from unemployment to part-time work but reduce the outflow from part-time work to full-time employment. We examine the optimal structure of benefits for unemployed and underemployed workers. The results indicate non-negligible welfare gains associated with time limits for unemployment benefits as well as for part-time benefits. The welfare gains from optimal UI are larger when wages are fixed than when they are flexible.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5540.

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Length: 32 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5540
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  1. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving incentives in unemployment insurance: A review of recent research," Working Paper Series 2003:5, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. JuanJ. Dolado & Marcel Jansen & JuanF. Jimeno, 2009. "On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers," Economic Journal, Royal Economic Society, vol. 119(534), pages 200-228, 01.
  3. Brenke, Karl & Rinne, Ulf & Zimmermann, Klaus F., 2011. "Short-Time Work: The German Answer to the Great Recession," IZA Discussion Papers 5780, Institute for the Study of Labor (IZA).
  4. StÈphane Bonhomme & GrÈgory Jolivet, 2009. "The pervasive absence of compensating differentials," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(5), pages 763-795.
  5. Booth, Alison L. & Francesconi, Marco & Frank, Jeff, 2000. "Temporary Jobs: Stepping Stones or Dead Ends?," IZA Discussion Papers 205, Institute for the Study of Labor (IZA).
  6. Tatsiramos, Konstantinos & van Ours, Jan C, 2012. "Labor Market Effects of Unemployment Insurance Design," CEPR Discussion Papers 9196, C.E.P.R. Discussion Papers.
  7. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09.
  8. Tomi Kyyrä, 2008. "Partial Unemployment Insurance Benefits and the Transition Rate to Regular Work," Discussion Papers 440, Government Institute for Economic Research Finland (VATT).
  9. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK.
  10. Kyyrä, Tomi & Parrotta, Pierpaolo & Rosholm, Michael, 2009. "The Effect of Receiving Supplementary UI Benefits on Unemployment Duration," Working Papers 09-1, University of Aarhus, Aarhus School of Business, Department of Economics.
  11. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  12. Raymond Munts, 1970. "Partial Benefit Schedules in Unemployment Insurance: Their Effect on Work Incentive," Journal of Human Resources, University of Wisconsin Press, vol. 5(2), pages 160-176.
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  15. McCall, B.P., 1993. "Unemployment Insurance Rules, Joblessness, and Part-Time Work," Papers 93-07, Minnesota - Industrial Relations Center.
  16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  17. Arlene Holen & Stanley Horowitz, 1974. "Partial Unemployment Insurance Benefits and the Extent of Partial Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 9(3), pages 420-422.
  18. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, 04.
  19. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-46, December.
  20. Leslie S. Stratton, 1996. "Are “Involuntary†Part-Time Workers Indeed Involuntary?," ILR Review, Cornell University, ILR School, vol. 49(3), pages 522-536, April.
  21. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April.
  22. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  23. Leslie S. Stratton, 1996. "Are "involuntary" part-time workers indeed involuntary?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 522-536, April.
  24. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  25. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
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