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Unemployment insurance and the business cycle

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  • Laura Brown
  • Christopher Ferrall

Abstract

An equilibrium model is developed to study the interaction of the business cycle, unemployment insurance (UI), and the labor market for young men in Canada. The model combines optimal job offer, layoff, and recall decisions within a numerically solved and restricted Bayesian-Nash equilibrium. We consider the long-run implications of changes made to unemployment insurance in Canada during the 1990s. The changes lead to equilibrium increases in average rates of unemployment, layoffs, and recalls. Eliminating UI lowers the equilibrium unemployment rate and average observed earnings. UI policy affects the timing of cycles of endogenous outcomes relative to the productivity cycle. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Laura Brown & Christopher Ferrall, 2003. "Unemployment insurance and the business cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 863-894, August.
    • Handle: RePEc:ier:iecrev:v:44:y:2003:i:3:p:863-894
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    Cited by:

    1. Miquel Faig & Min Zhang, 2012. "Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 41-56, January.
    2. Cerda, Rodrigo & Vergara, Rodrigo, 2007. "Unemployment insurance in Chile: Does it stabilize the business cycle?," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 473-488.
    3. Miquel Faig, 2008. "Labor Market Cycles and Unemployment Insurance Eligibility," 2008 Meeting Papers 183, Society for Economic Dynamics.
    4. Hall, Robert E. & Kudlyak, Marianna, 2022. "The unemployed with jobs and without jobs," Labour Economics, Elsevier, vol. 79(C).

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