Unemployment benefits and educational choices
In this paper it is argued that the risk-pooling role of unemployment benefits affects the irreversible choices of future labour market entrants. One such ex ante choice is education. Some types of education lead to general human capital that lead to almost certain employment. Other types of education are more specialised and lead to less secure employment. We address this issue in OLG search models that allow for riskaversion, heterogeneity in talents, endogenous price formation of different specialisations, and competitive wage formation. We find that in the absence of unemployment benefits, the percentage of individuals taking high-risk specialised education is inefficiently low. Those with higher innate abilities are typically found to take lower degrees of specialisation, implying that the relation between wages and risks at the individual level is the reverse from what it is at the aggregate level. We find that an unemployment benefit (UB) system raises efficiency and welfare because it promotes efficient specialisation. Because education takes time, it takes a long time before the composition of the workforce has adapted to changing incentives. With a calibrated model we explore such lags between unexpected changes in circumstances and outcomes.
|Date of creation:||15 Jun 2001|
|Date of revision:|
|Contact details of provider:|| Postal: GPO Box 2434, BRISBANE QLD 4001|
Web page: http://www.bus.qut.edu.au/faculty/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daron Acemoglu & Robert Shimer, 1998.
"Efficient Unemployment Insurance,"
NBER Working Papers
6686, National Bureau of Economic Research, Inc.
- Christophe Daniel & Catherine Sofer, 1998.
"Bargaining, Compensating Wage Differentials, and Dualism of the Labor Market: Theory and Evidence for France,"
- Daniel, Christophe & Sofer, Catherine, 1998. "Bargaining, Compensating Wage Differentials, and Dualism of the Labor Market: Theory and Evidence for France," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 546-75, July.
- Daron Acemoglu & Robert Shimer, 1999.
"Productivity Gains from Unemployment Insurance,"
99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
- Aumann, Robert J., 1977. "The St. Petersburg paradox: A discussion of some recent comments," Journal of Economic Theory, Elsevier, vol. 14(2), pages 443-445, April.
- Blanchard, Olivier & Wolfers, Justin, 2000.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
Royal Economic Society, vol. 110(462), pages C1-33, March.
- Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
- Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 333-43, July.
- Liliane Bonnal & Denis Fougère & Anne Sérandon, 1997. "Evaluating the Impact of French Employment Policies on Individual Labour Market Histories," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 683-713.
When requesting a correction, please mention this item's handle: RePEc:qut:dpaper:099a. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Fletcher)
If references are entirely missing, you can add them using this form.