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Duration Dependent Unemployment Insurance and Stabilisation Policy

  • Adrian Masters
  • Melvyn Coles

In the context of a standard equilibrium matching framework, this paper shows how a duration dependent unemployment insurance (UI) system stabilises unemployment levels over the business cycle. It establishes that re-entitlement effects induced by a finite duration UI program generate intertemporal tranfers from firms that hire in future booms to firms that hire in current recessions. These transfers imply a net hiring subsidy in recessions which stabilises unemployment levels over the cycle.

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File URL: http://www.albany.edu/economics/research/workingp/2004/sfweb.pdf
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 04-10.

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Date of creation: 2004
Date of revision:
Handle: RePEc:nya:albaec:04-10
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

Order Information: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Web: http://www.albany.edu/economics/research/workingp/index.shtml Email:


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  1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  2. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  3. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  4. Acemoglu, D. & Pischke, J.S., 1997. "The Structure of Wages and Investment in General Training," Working papers 97-24, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Working Papers 150201, Institut National de la Recherche Agronomique, France.
  6. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  7. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  8. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
  9. Harold L. Cole & Richard Rogerson, 1996. "Can the Mortonson-Pissarides matching model match the business cycle facts?," Staff Report 224, Federal Reserve Bank of Minneapolis.
  10. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  11. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  12. Stevens, M., 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention," Economics Papers 2000-w10, Economics Group, Nuffield College, University of Oxford.
  13. Fredriksson, P. & Holmlund, B., 1998. "Optimal Unemployment Insurance in Search Equilibrium," Papers 1998-2, Uppsala - Working Paper Series.
  14. James Albrecht & Susan Vroman, 2001. "Equilibrium Search with Time-Varying Unemployment Benefits," CESifo Working Paper Series 487, CESifo Group Munich.
  15. Carl Davidson & Stephen A. Woodbury, . "Optimal Unemployment Insurance," Upjohn Working Papers and Journal Articles cdsaw1997, W.E. Upjohn Institute for Employment Research.
  16. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  17. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  18. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  19. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  20. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  21. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
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