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Asset‐Based Unemployment Insurance

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  • Pontus Rendahl

Abstract

This article studies a model of consumption, savings, and job search in which a borrowing constraint limits self‐insurance. The government administers the unemployment insurance program that may condition on an individual’s asset position, but not on her efforts of finding a job. To compensate for the impediments to self‐insurance, benefit payments should optimally be set higher at lower wealth levels and peak for borrowing‐constrained individuals with zero liquid funds. A quantitative exercise reveals that the U.S. unemployment insurance program is surprisingly close to optimal for the asset poor, but far too generous for wealthier individuals.

Suggested Citation

  • Pontus Rendahl, 2012. "Asset‐Based Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 743-770, August.
    • Handle: RePEc:wly:iecrev:v:53:y:2012:i:3:p:743-770
    DOI: 10.1111/j.1468-2354.2012.00699.x
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    4. Andrey Launov & Klaus Wälde, 2013. "Estimating Incentive And Welfare Effects Of Nonstationary Unemployment Benefits," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(4), pages 1159-1198, November.
    5. Joseph, Gilles & Maingé, Paul-Emile, 2023. "Characterization of optimal durations of unemployment benefits in a nonstationary job search model," Mathematical Social Sciences, Elsevier, vol. 125(C), pages 76-93.
    6. Konstantinos Tatsiramos & Jan C. Ours, 2014. "Labor Market Effects Of Unemployment Insurance Design," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 284-311, April.
    7. Simon J. Heiler, 2024. "Worker Heterogeneity and Optimal Unemployment Insurance: The Surprising Power of the Floor," CRC TR 224 Discussion Paper Series crctr224_2024_545, University of Bonn and University of Mannheim, Germany.
    8. Sebastien Menard & Solenne Tanguy, 2017. "Revisiting Hopenhayn and Nicolini 's optimal unemployment insurance with job search monitoring and sanctions," TEPP Working Paper 2017-08, TEPP.
    9. Parsons, Donald O., 2014. "Job Displacement Insurance: An Overview," IZA Discussion Papers 8223, Institute of Labor Economics (IZA).
    10. Gilles Joseph & Paul-Emile Maingé, 2018. "The Optimal Duration of Unemployment Benefits ," Working Papers hal-01722116, HAL.

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