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Unemployment Insurance Reforms in a Search Model With Endogenous Labor Force Participation

Author

Listed:
  • Johannes Goensch
  • Andreas Gulyas
  • Ioannis Kospentaris

Abstract

This paper develops a life-cycle search model with a labor force participation decision of workers, job-to-job transitions and endogenous job creation to study unemployment insurance (UI) reforms. The calibrated model replicates the aggregate and life-cycle patterns of labor market flows from the Current Population Survey, as well as the worker labor market histories over four months. The model predicts that an UI extension to 99 weeks leads to a slight decrease in labor productivity, the employment to population ratio and the labor force participation rate, but to a non-trivial increase in the unemployment rate. An equally expensive increase in UI benefits, holding the eligibility duration unchanged, yields a smaller increase in the unemployment rate and a smaller decrease in the labor force participation rate. We show that disregarding the effect of flows in and out of the labor force and job-to-job transitions would significantly bias the response of the unemployment rate and labor productivity to UI reforms.

Suggested Citation

  • Johannes Goensch & Andreas Gulyas & Ioannis Kospentaris, 2021. "Unemployment Insurance Reforms in a Search Model With Endogenous Labor Force Participation," CRC TR 224 Discussion Paper Series crctr224_2021_264, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2021_264
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp264
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    Citations

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    Cited by:

    1. Alexander Bick & Adam Blandin, 2023. "Employer Reallocation During the COVID-19 Pandemic: Validation and Application of a Do-It-Yourself CPS," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 58-76, July.
    2. Jonathan Créchet & Étienne Lalé & Linas Tarasonis, 2023. "Life-Cycle Worker Flows and Cross-country Differences in Aggregate Employment," Working Papers 2306E, University of Ottawa, Department of Economics.
    3. Miroslav Gabrovski & Athanasios Geromichalos & Lucas Herrenbrueck & Ioannis Kospentaris & Sukjoon Lee, 2023. "The real effects of financial disruptions in a monetary economy," Working Papers 202302, University of Hawaii at Manoa, Department of Economics.

    More about this item

    Keywords

    Unemployment Insurance; Labor Market Flows; Directed Search;
    All these 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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • 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
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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