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

Author

Listed:
  • Nicholas Trachter

    (EIEF)

  • Hernan Ruffo

    (UTDT)

  • Facundo Piguillem

    (EIEF. Einaudi Institute for Economics and Finance)

Abstract

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.

Suggested Citation

  • Nicholas Trachter & Hernan Ruffo & Facundo Piguillem, 2012. "Unemployment Insurance in a Life Cycle General Equilibrium Model with Human Capital," 2012 Meeting Papers 1046, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1046
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    File URL: https://economicdynamics.org/meetpapers/2012/paper_1046.pdf
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    References listed on IDEAS

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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.
    3. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
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    Cited by:

    1. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.

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