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Employer Screening, Unemployment Stigma and Optimal Unemployment Insurance

Listed author(s):
  • Meier, Mario
  • Obermeier, Tim

This paper studies how firms’ screening behavior and crowding out among applicants affect the optimal design of unemployment policies. In our model, firms face a pool of applicants and observe unemployment duration and a signal about productivity. Firms screen the applicants with the highest expected productivity first. The probability of being hired declines with duration due to declining beliefs about productivity and competition by other job seekers. We estimate the model using German administrative employment records and information on job search behavior, vacancies and applications. The model matches the observed decline in search effort and job finding rates and the implied decline of callback rates is in line with recent evidence from audit studies. Optimal policy takes into account that unemployment benefits can affect hiring probabilities by making unemployment duration more or less informative and by changing the applications-per-vacancy ratio due to search effort or vacancy responses. In theory, optimal benefits for the long-term unemployed can be higher or lower than for the short-term unemployed and the equilibrium elasticity of unemployment duration to benefits can be larger or smaller than the standard micro elasticity. Our quantitative findings suggest that benefit levels should be more generous, especially after the first year of unemployment. We also find that extended benefits do not increase the duration of unemployment as much as suggested by a model without employer screening.

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File URL: https://www.econstor.eu/bitstream/10419/148303/1/MO-Optimal-UI.pdf
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Paper provided by ZBW - German National Library of Economics in its series EconStor Preprints with number 148303.

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Date of creation: 2017
Handle: RePEc:zbw:esprep:148303
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  1. 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.
  2. Rafael Lalive & Camille Landais & Josef Zweimüller, 2015. "Market Externalities of Large Unemployment Insurance Extension Programs," American Economic Review, American Economic Association, vol. 105(12), pages 3564-3596, December.
  3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
  4. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
  5. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, 03.
  6. Bemjamin Villena-Roldan, 2009. "Aggregate Implications of Employer Search and Recruiting Selection," 2009 Meeting Papers 97, Society for Economic Dynamics.
  7. Alan B. Krueger & Andreas I. Mueller, 2016. "A Contribution to the Empirics of Reservation Wages," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 142-179, February.
  8. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-1750, June.
  9. Arash Nekoei & Andrea Weber, 2017. "Does Extending Unemployment Benefits Improve Job Quality?," American Economic Review, American Economic Association, vol. 107(2), pages 527-561, February.
  10. Carroll, Christopher D., 2006. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," Economics Letters, Elsevier, vol. 91(3), pages 312-320, June.
  11. Schmieder, Johannes F. & Wachter, Till von & Bender, Stefan, 2010. "The effects of unemployment insurance on labor supply and search outcomes : regression discontinuity estimates from Germany," IAB Discussion Paper 201004, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  12. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "A Macroeconomic Theory of Optimal Unemployment Insurance," NBER Working Papers 16526, National Bureau of Economic Research, Inc.
  13. Robert Shimer & Iván Werning, 2006. "On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation," NBER Working Papers 12230, National Bureau of Economic Research, Inc.
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