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Should UI Benefits Really Fall Over Time?

Author

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  • Hassler, John

    (Stockholm University)

  • Rodriguez Mora, José V.

    (University of Edinburgh)

Abstract

The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in a tractable model allowing moral hazard, adverse selection and hidden saving. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden saving. In general, adverse selection problems tend to generate increasing benefits, moral hazard problems constant benefits and decreasing search productivity falling benefits.

Suggested Citation

  • Hassler, John & Rodriguez Mora, José V., 2002. "Should UI Benefits Really Fall Over Time?," IZA Discussion Papers 622, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp622
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    References listed on IDEAS

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    Cited by:

    1. Peter Fredriksson & Bertil Holmlund, 2006. "Optimal unemployment insurance design: Time limits, monitoring, or workfare?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(5), pages 565-585, September.
    2. Andreas Pollak, 2008. "Optimal Unemployment Insurance with Variable Skill Levels," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 696-726, December.
    3. Christian Holzner & Volker Meier & Martin Werding, 2010. "Time Limits in a Two-tier Unemployment Benefit Scheme under Involuntary Unemployment," CESifo Economic Studies, CESifo, vol. 56(2), pages 251-277, June.
    4. Schwartz, J., 2015. "Optimal unemployment insurance: When search takes effort and money," Labour Economics, Elsevier, vol. 36(C), pages 1-17.
    5. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, July.
    6. Hagedorn, Marcus & Kaul, Ashok & Mennel, Tim, 2010. "An adverse selection model of optimal unemployment insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 490-502, March.
    7. Hassler, John & Rodríguez Mora, José Vicente, 2007. "Unemployment insurance design: inducing moving and retraining," Discussion Paper Series In Economics And Econometrics 0702, Economics Division, School of Social Sciences, University of Southampton.
    8. Breyer, Friedrich & Franz, Wolfgang & Homburg, Stefan & Schnabel, Reinhold & Wille, Eberhard, 2004. "Reform der sozialen Sicherung: Kurzfassung," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 92399, October.
    9. Hassler, John & Rodríguez Mora, José V., 2008. "Unemployment insurance design: Inducing moving and retraining," European Economic Review, Elsevier, vol. 52(5), pages 757-791, July.
    10. Christian Holzner & Volker Meier & Martin Werding, 2004. "Time Limits on Welfare Use under Involuntary Unemployment," CESifo Working Paper Series 1220, CESifo.

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    More about this item

    Keywords

    moral hazard; unemployment insurance; adverse selection;
    All these keywords.

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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