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Unemployment Insurance in a Life Cycle General Equilibrium Model with Human Capital

Listed author(s):
  • Nicholas Trachter

    (EIEF)

  • Hernan Ruffo

    (UTDT)

  • Facundo Piguillem

    (EIEF. Einaudi Institute for Economics and Finance)

We evaluate the welfare gains of extending the duration and increasing the replacement ratio of the current unemployment insurance system in US. To this end, we build a general equilibrium overlapping generations model with on the job human capital accumulation. The model is able, among other things, to match the inequality of outstanding insurance in the economy (through the endogenous wealth distribution). The key features of the model are (i) agents are borrowing constraint, (ii) nding a job requires to exert (unobservable) eort, (iii) nite life span, and (iv) human capital accumulates only while the agent is employed. We nd that, respect to the class of models usually used to study this problem, the last two nobel features substantially increase the welfare gains of more unemployment insurance. The optimal policy prescribes increasing the replacement ratio up to 90% and the duration to 9 months.

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File URL: https://economicdynamics.org/meetpapers/2012/paper_1046.pdf
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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1046.

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Date of creation: 2012
Handle: RePEc:red:sed012:1046
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
  2. Claudio Michelacci & Hernán Ruffo, 2015. "Optimal Life Cycle Unemployment Insurance," American Economic Review, American Economic Association, vol. 105(2), pages 816-859, February.
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