Equilibrium Unemployment Insurance
1999 (English)Report (Other academic)
In this paper, we incorporate a positive theory of unemployment insurance into a dynamic overlapping generations model with search-matching frictions and on-the-job learning-by-doing. The model shows that societies populated by identical rational agents, but differing in the initial distribution of human capital across agents, may choose very different unemployment insurance levels in a politico-economic equilibrium. The interaction between the political decision about the level of the unemployment insurance and the optimal search behavior of the unemployed gives rise to a self-reinforcing mechanism which may generate multiple stady-state equillibria. In particular, a European-type steady-state with high unemployment, low employment turnover and high insurance can co-exist with an American-type steady-state with low unemployment, high employment turnover and low unemployment insurance. A calibrated version of the model features two distinct steady-state equilibria with unemployment levels and duration rates resembling those of the U.S. and Europe, respectively.
Place, publisher, year, edition, pages
Stockholm: IIES , 1999. , 57 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 665
Comparative Advantage, Employment, Political Equilibrium, Search, Specialization, Unemployment Insurance
IdentifiersURN: urn:nbn:se:su:diva-41090OAI: oai:DiVA.org:su-41090DiVA: diva2:328271