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Optimal Unemployment Insurance in Search Equilibrium (1999)
| Citations: | 90 - 12 self |
BibTeX
@MISC{Fredriksson99optimalunemployment,
author = {Peter Fredriksson and Bertil Holmlund},
title = {Optimal Unemployment Insurance in Search Equilibrium },
year = {1999}
}
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Abstract
Should unemployment benefits be paid indefinitely at a fixed rate or should it decline (or increase) over a worker’s unemployment spell? We examine these issues using an equilibrium model of search unemployment. The model features worker-firm bargaining over wages, free entry of new jobs, and endogenous search effort among the unemployed. The main result is that an optimal insurance program implies a declining benefit sequence over the spell of unemployment. Numerical calibrations of the model suggest that there may be non-trivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system.
Keyphrases
gerhard van den berg anonymous referee worker-firm bargaining differentiated system optimal insurance program endogenous search effort new job equilibrium model free entry unemployment benefit fixed rate benefit sequence main result search unemployment optimal uniform benefit structure non-trivial welfare gain worker unemployment spell numerical calibration
