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Productivity Gains from Unemployment Insurance

  • Daron Acemoglu
  • Robert Shimer

This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the standard moral hazard effects of unemployment insurance. Our model economy captures the behavior of the U.S. labor market for high school graduates quite well. When unemployment insurance becomes more generous starting from the current U.S. levels, there is an increase in unemployment similar in magnitude to the micro-estimates, but because the composition of jobs also changes, total output and welfare increase as well.

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File URL: http://www.nber.org/papers/w7352.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7352.

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Date of creation: Sep 1999
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Publication status: published as Acemoglu, Daron and Robert Shimer. "Productivity Gains From Unemployment Insurance," European Economic Review, 2000, v44(7,Jun), 1195-1224.
Handle: RePEc:nbr:nberwo:7352
Note: LS PE EFG
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  20. Poterba, James M & Summers, Lawrence H, 1986. "Reporting Errors and Labor Market Dynamics," Econometrica, Econometric Society, vol. 54(6), pages 1319-38, November.
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  28. Bruce D. Meyer, 1989. "A Quasi-Experimental Approach to the Effects of Unemployment Insurance," NBER Working Papers 3159, National Bureau of Economic Research, Inc.
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