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Efficient Unemployment Insurance

Author

Listed:
  • Acemoglu, D.
  • Shimer, R.

Abstract

This paper argues that moderate unemployment insurance not only reduces the uncertainty faced by risk-averse workers but also improves efficiency and raises output. We develop a model in which the decentralized equilibrium is inefficient without unemployment insurance, because the labor market endogenously creates jobs that provide risk-averse workers with low unemployment risk and low wages. Essentially, the labor market offers its own version of insurance.

Suggested Citation

  • Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:97-9
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    EFFICIENCY ; WAGES ; UNEMPLOYMENT ; RISK;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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