IDEAS home Printed from https://ideas.repec.org/p/yon/wpaper/2025rwp-270.html

The Role of Wealth and Participation Decisions in Designing Unemployment Insurance

Author

Listed:
  • Youngsoo Jang

    (Yonsei University)

  • Ji-Woong Moon

    (Chung-Ang University)

Abstract

We examine (i) how Labor-Force Participation (LFP) margins influence unemployment through their interaction with wealth accumulation and (ii) their impact on the optimal design of unemployment insurance (UI). To this end, we construct a job search and matching model that incorporates incomplete financial markets and LFP decisions in general equilibrium. We find that LFP margins are crucial for explaining the negative relationship between unemployment and wealth observed in micro-level data. In both the model and the data, declining inflows into unemployment with wealth are the key driver of this negative relationship. Without LFP choices, however, the unemployment rate increases with wealth because inflows into unemployment do not decline with wealth, contradicting empirical findings. This disparity has significant policy implications for the design of UI: the optimal UI benefit is 75% of the current level when LFP decisions are incorporated, whereas in the model without LFP margins the optimal benefit is 0%.

Suggested Citation

  • Youngsoo Jang & Ji-Woong Moon, 2025. "The Role of Wealth and Participation Decisions in Designing Unemployment Insurance," Working papers 2025rwp-270, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2025rwp-270
    as

    Download full text from publisher

    File URL: http://121.254.254.220/repec/yon/wpaper/2025rwp-270.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kalai, Ehud, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Econometrica, Econometric Society, vol. 45(7), pages 1623-1630, October.
    2. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1879-1901, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    2. Jessen, Jonas & Jessen, Robin & Galecka-Burdziak, Ewa & Góra, Marek & Kluve, Jochen, 2023. "The Micro and Macro Effects of Changes in the Potential Benefit Duration," IZA Discussion Papers 15978, Institute of Labor Economics (IZA).
    3. Bergantiños, Gustavo & Moreno-Ternero, Juan D., 2022. "Monotonicity in sharing the revenues from broadcasting sports leagues," European Journal of Operational Research, Elsevier, vol. 297(1), pages 338-346.
    4. Christian Keuschnigg, 2008. "Corporate Taxation and the Welfare State," Working Papers 0813, Oxford University Centre for Business Taxation.
    5. Radzvilas, Mantas, 2016. "Hypothetical Bargaining and the Equilibrium Selection Problem in Non-Cooperative Games," MPRA Paper 70248, University Library of Munich, Germany.
    6. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2015. "The Optimal Timing of UI Benefits: Theory and Evidence from Sweden," CEP Discussion Papers dp1361, Centre for Economic Performance, LSE.
    7. Lea Melnikovová, 2017. "Can Game Theory Help to Mitigate Water Conflicts in the Syrdarya Basin?," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(4), pages 1393-1401.
    8. Berentsen, Aleksander & McBride, Michael & Rocheteau, Guillaume, 2017. "Limelight on dark markets: Theory and experimental evidence on liquidity and information," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 70-90.
    9. Daniele Cassese & Paolo Pin, 2025. "Decentralized pure exchange processes on networks," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 64(3), pages 427-463, May.
    10. Kuester, Keith & Jung, Philip & Ignaszak, Marek, 2020. "Federal unemployment reinsurance and local labor-market policies," CEPR Discussion Papers 15465, C.E.P.R. Discussion Papers.
    11. Roger B. Myerson, 1978. "Conference Structures and Fair Allocation Rules," Discussion Papers 363, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. José-Manuel Giménez-Gómez & António Osório & Josep E. Peris, 2015. "From Bargaining Solutions to Claims Rules: A Proportional Approach," Games, MDPI, vol. 6(1), pages 1-7, March.
    13. Takeuchi, Ai & Veszteg, Róbert F. & Kamijo, Yoshio & Funaki, Yukihiko, 2022. "Bargaining over a jointly produced pie: The effect of the production function on bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 134(C), pages 169-198.
    14. Hwang, Sung-Ha & Rey-Bellet, Luc, 2021. "Positive feedback in coordination games: Stochastic evolutionary dynamics and the logit choice rule," Games and Economic Behavior, Elsevier, vol. 126(C), pages 355-373.
    15. Saglam, Ismail, 2016. "An Alternative Characterization for Iterated Kalai-Smorodinsky-Nash Compromise," MPRA Paper 73564, University Library of Munich, Germany.
    16. Nathaniel Hendren & Camille Landais & Johannes Spinnewijn, 2021. "Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 457-486, August.
    17. Chao Gu & Cyril Monnet & Ed Nosal & Randall Wright, 2019. "On the Instability of Banking and Other Financial Intermediation," Working Papers 19.04, Swiss National Bank, Study Center Gerzensee.
    18. van Damme, Eric & Lang, Xu, 2025. "Two-person bargaining when the disagreement point is private information," Games and Economic Behavior, Elsevier, vol. 150(C), pages 387-400.
    19. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2018. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," American Economic Review, American Economic Association, vol. 108(4-5), pages 985-1033, April.
    20. Majumdar, Dipjyoti, 2004. "An axiomatic characterization of Bayes' Rule," Mathematical Social Sciences, Elsevier, vol. 47(3), pages 261-273, May.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:yon:wpaper:2025rwp-270. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: YERI (email available below). General contact details of provider: https://edirc.repec.org/data/eryonkr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.