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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
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Handle: RePEc:red:sed006:189
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