http://hassler-j.iies.su.se/COURSES/DynPubFin/Papers/baily78.pdf

Some aspects of optimal unemployment insurance

The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as .65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, but is instead set to an empirically plausible value, the economy can be much worse off than it would be without unemployment insurance.

/pdf/the-role-of-unemployment-insurance-in-an-economy-with-41e5iuif3e.pdf

The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard

This paper provides a review of the recent literature on how incentives in unemployment insurance (UI) can be improved. We are particularly concerned with three instruments, viz. the duration of benefit payments (or more generally the time sequencing of benefits), monitoring in conjunction with sanctions, and workfare. Our reading of the theoretical literature is that the case for imposing a penalty on less active job search is fairly solid. A growing number of empirical studies, including randomized experiments, are in line with this conclusion. Keywords: Unemployment insurance, search, monitoring, sanctions, workfare JEL-classification: J64, J65, J68

/pdf/improving-incentives-in-unemployment-insurance-a-review-of-jbjl8swsvu.pdf

Improving incentives in unemployment insurance: A review of recent research

We consider both theoretically and empirically the effect of unemployment insurance (UI) on precautionary savings behavior. Simulations of a stochastic life cycle model suggest that increasing the generosity of UI will substantially lower the asset holdings of the median worker, and that this effect will both rise with unemployment risk and fall with worker age. We test these implications by matching data on potential UI replacement rates to asset holdings in the Survey of Income and Program Participation (SIPP). Our empirical results are quite consistent with the predictions of the model. We find that raising the replacement rate for UI by 10 percentage points lowers financial asset holdings by 1.4 to 5.6%, so that UI crowds out up to one-half of private savings for the typical unemployment spell. We also find that this effect is stronger for those facing higher unemployment risk and weaker for older workers.

Unemployment Insurance and Precautionary Saving

A hallmark of modern labor economics is the close interplay between the development of theory, data sources and econometric testing. The evolution of the economic analysis of unemployment insurance provides a good illustration. New theoretical approaches, in particular job-search theory, have inspired a large amount of empirical research, some of it methodologically innovative and most of it highly relevant for economic policy. The paper presents a broad survey and an assessment of the economic analysis of unemployment insurance as it has evolved since the 1970s.

/pdf/unemployment-insurance-in-theory-and-practice-4b3u9u4mur.pdf

Unemployment Insurance in Theory and Practice

The object of this paper is to examine the importance of capital market assumptions. A special continuous-time model is developed in sections II-IV which is applicable to the perfect capital market case. It can also be used when there is no capital market at all (section IV). For 'reasonable' parameter values the optimal replacement rate (ratio of benefits to gross wage) appears to be less than 20% when capital markets are perfect but over 70% when they are non existent (i.e. no saving or dis-saving).

Aspects of Optimal Unemployment Insurance: Search, Leisure and Capital Market Imperfections

https://www.nber.org/system/files/working_papers/w0214/w0214.pdf

J. S. Flemming

Papers

Aspects of Optimal Unemployment Insurance: Search, Leisure and Capital Market Imperfections

Aspects of Optimal Unemployment Insurance: Search, Leisure and Capital Market Imperfections