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Optimal Unemployment Insurance for Older Workers

  • Jean-Olivier Hairault
  • François Langot
  • Sébastien Menard
  • Thepthida Sopraseuth

This paper studies the optimal unemployment insurance for older workers in a repeated principal–agent model, where the search intensity of risk-averse workers (the agents) is not observed by the risk-neutral insurance agency (the principal). When unemployment benefits are the only available tool, the insurance agency is not able to induce older workers to search for a job. This is because of the short time-horizon of workers close to retirement. We propose to introduce a pension tax dependent on the length of the unemployment spell. We show that this device performs better than a wage tax after re-employment. First, it makes jobs more attractive, as they are free of tax. Second, because re-employment will be short-lived, a pension tax is a more powerful incentive than a wage tax, and provides more substantial fiscal gains to the agency. Finally, a pension tax allows those workers near retirement who still do not exercise job search to smooth their consumption during their unemployment spell, as if they could borrow against their future pension.

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File URL: http://www.tepp-repec.eu/RePEc/files/teppwp/TEPP-WP-12-07-JOH-FL-SM-TS.pdf
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Paper provided by TEPP in its series TEPP Working Paper with number 2012-07.

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Date of creation: 2012
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Handle: RePEc:tep:teppwp:wp12-07
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  1. Adrian Masters & Melvyn Coles, 2004. "Optimal Unemployment Insurance in a Matching Equilibrium," Discussion Papers 04-12, University at Albany, SUNY, Department of Economics.
  2. Guido Menzio & Irina A. Telyukova & Ludo Visschers, 2015. "Directed Search over the Life Cycle," ESE Discussion Papers 254, Edinburgh School of Economics, University of Edinburgh.
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  4. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
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  7. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series 693, CESifo Group Munich.
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  9. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and The Job Search of Older Workers: The Case For Delaying Retirement Age," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00517107, HAL.
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  17. repec:oup:restud:v:76:y:2009:i:3:p:1049-1070 is not listed on IDEAS
  18. Arnaud Chéron & Jean‐Olivier Hairault & François Langot, 2011. "Age‐Dependent Employment Protection," Economic Journal, Royal Economic Society, vol. 121(557), pages 1477-1504, December.
  19. Seater, John J., 1977. "A unified model of consumption, labor supply, and job search," Journal of Economic Theory, Elsevier, vol. 14(2), pages 349-372, April.
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  23. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
  24. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  25. Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 599-617.
  26. Anonymous, 1994. "Research Updates," Journal of Food Distribution Research, Food Distribution Research Society, vol. 25(1), February.
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