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Re-entitlement Effects with Duration Dependent Unemployment Insurance in a Stochastic Matching Equilibrium

  • Melvyn Coles
  • Adrian Masters


    (State University of New York Albany)

In the context of a standard equilibrium matching framework, this paper considers how a duration dependent unemployment insurance (UI) system affects the dynamics of unemployment and wages in an economy subject to stochastic job-destruction shocks. It establishes that re-entitlement effects induced by a finite duration UI program generate intertemporal transfers from firms that hire in future booms to firms that hire in current recessions. These transfers imply a net hiring subsidy in recessions which stabilizes unemployment levels over the cycle

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 189.

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Date of creation: 03 Dec 2006
Date of revision:
Handle: RePEc:red:sed006:189
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  18. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  19. Melvyn Coles, 2005. "Optimal Unemployment Insurance in a Matching Equilibrium: The Role of Congestion and Thick-Market Externalities," Working Papers 206, Barcelona Graduate School of Economics.
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