Unemployment insurance with endogenous search intensity and precautionary saving
A welfare analysis of unemployment insurance (UI) is performed in a general equilibrium job search model. Finitely-lived, risk-averse workers smooth consumption over time by accumulating assets, choose search effort when unemployed, and suffer disutility from work. Firms hire workers, purchase capital, and pay taxes to finance worker benefits; their equity is the asset accumulated by workers. A matching function relates unemployment, hiring expenditure, and search effort to the formation of jobs. The model is calibrated to US data; the parameters relating job search effort to the probability of job finding are chosen to match microeconomic studies of unemployment spells. Under logarithmic utility, numerical simulation shows rather small welfare gains from UI. Even without UI, workers smooth consumption effectively through asset accumulation. Greater risk aversion leads to substantially larger welfare gains from UI; however, even in this case much of its welfare impact is due not to consumption smoothing effects, but rather to decreased work disutility, or to a variety of externalities.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Deaton, Angus & Paxson, Christina, 1994.
"Intertemporal Choice and Inequality,"
Journal of Political Economy,
University of Chicago Press, vol. 102(3), pages 437-67, June.
- Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
- Christopher D. Carroll & Andrew A. Samwick, 1993.
"How important is precautionary saving?,"
Working Paper Series / Economic Activity Section
145, Board of Governors of the Federal Reserve System (U.S.).
- Ljungqvist, Lars & Sargent, Thomas J., 1997.
"The European Unemployment Dilemma,"
SSE/EFI Working Paper Series in Economics and Finance
178, Stockholm School of Economics.
- Lars Ljungqvist & Thomas J. Sargent, 1995. "The European unemployment dilemma," Working Paper Series, Macroeconomic Issues 95-17, Federal Reserve Bank of Chicago.
- Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series 481, Research Institute of Industrial Economics.
- Lars Ljungqvist & Thomas J. Sargent, 1996. "The European Unemployment Dilemma," EUI-RSCAS Working Papers 36, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Aiyagari, S Rao, 1994.
"Uninsured Idiosyncratic Risk and Aggregate Saving,"
The Quarterly Journal of Economics,
MIT Press, vol. 109(3), pages 659-84, August.
- Dale Mortensen, 1984.
"Job Search and Labor Market Analysis,"
594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Acemoglu, D. & Shimer, R., 1997.
"Efficient Unemployment Insurance,"
97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
- Silvio Rendon, 2002.
"Job search and asset accumulation under borrowing constraints,"
Economics Working Papers
649, Department of Economics and Business, Universitat Pompeu Fabra.
- Rendon Sílvio, 2006. "Job Search And Asset Accumulation Under Borrowing Constraints ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 233-263, 02.
- Silvio Rendón, 2002. "Job Search And Asset Accumulation Under Borrowing Constraints," Economics Working Papers we025219, Universidad Carlos III, Departamento de Economía.
- Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
- James S. Costain, 1998. "On the quantitative importance of wage bargaining models," Economics Working Papers 262, Department of Economics and Business, Universitat Pompeu Fabra.
- Patricia M. Anderson & Bruce D. Meyer, 1994. "The Effects of Unemployment Insurance Taxes and Benefits on Layoffs Using Firm and Individual Data," NBER Working Papers 4960, National Bureau of Economic Research, Inc.
- Dynarski, Mark & Sheffrin, Steven M, 1987. "Consumption and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 411-28, May.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:243. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.