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A Positive Theory of Geographic Mobility and Social Insurance

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Author Info
Hassler, John
Mora, Jose V. Rodriguez
Storesletten, Kjetil
Zilibotti, Fabrizio

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Abstract

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary e.ects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states -- one "European" steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one "American" steadystate featuring low unemployment, high mobility and low unemployment insurance.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 791.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_791

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Related research
Keywords: employment; migration; geographical mobility; political equilibrium; unemployment insurance; voting.;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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  1. Gilles Saint-Paul, 1993. "On the Political Economy of Labor Market Flexibility," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 151-196 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
    Other versions:
  3. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The Survival of the Welfare State," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  4. Pallage, Stephane & Zimmermann, Christian, 2001. "Voting on Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 903-23, November.
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  6. Cameron, Gavin & Muellbauer, John, 1998. "The Housing Market and Regional Commuting and Migration Choices," CEPR Discussion Papers 1945, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-1), pages 1-76. [Downloadable!]
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  9. Bartel, Ann P, 1979. "The Migration Decision: What Role Does Job Mobility Play?," American Economic Review, American Economic Association, vol. 69(5), pages 775-86, December. [Downloadable!] (restricted)
  10. Borjas, George J & Bronars, Stephen G & Trejo, Stephen J, 1992. "Assimilation and the Earnings of Young Internal Migrants," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 170-75, February. [Downloadable!] (restricted)
  11. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July. [Downloadable!] (restricted)
  12. Bentolila, Samuel, 1997. "Sticky labor in Spanish regions," European Economic Review, Elsevier, vol. 41(3-5), pages 591-598, April. [Downloadable!] (restricted)
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  13. Pissarides, Christopher A & Wadsworth, Jonathan, 1989. "Unemployment and the Inter-regional Mobility of Labour," Economic Journal, Royal Economic Society, vol. 99(397), pages 739-55, September. [Downloadable!] (restricted)
  14. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June. [Downloadable!] (restricted)
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  15. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August. [Downloadable!] (restricted)
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  16. Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1989. "Housing, Wages and UK Labour Markets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 97-136, March.
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  17. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2001. "Widening differences in Italian regional unemployment," Labour Economics, Elsevier, vol. 8(1), pages 103-129, January. [Downloadable!] (restricted)
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