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Optimal Unemployment Insurance: How Important is the Demand Side?

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  • Rune Vejlin

    (Department of Economics and Business, Aarhus University, Denmark)

Abstract

I develop and simulate an equilibrium model of search with endogenous savings and search intensity. The wage offer distribution is endogenized by firms making vacancy and entry choices. This allows me to conduct a counterfactual analysis of the optimal unemployment insurance (UI) level. The provision of UI is motivated by the worker's inability to perfectly insure against income shocks, but at the same time UI introduces a distortion to the level of search intensity of the worker and vacancy intensity of firms. I find that equilibrium effects are important to take into account. Making policy from a partial model can introduce large welfare loses. It is also shown that different kinds of taxes have different implications on welfare.

Suggested Citation

  • Rune Vejlin, 2011. "Optimal Unemployment Insurance: How Important is the Demand Side?," Economics Working Papers 2011-03, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2011-03
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    References listed on IDEAS

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    Cited by:

    1. Mukoyama, Toshihiko, 2013. "Understanding the welfare effects of unemployment insurance policy in general equilibrium," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 347-368.
    2. Jan Eeckhout & Alireza Sepahsalari, 2020. "The Effect of Wealth on Worker Productivity," Bristol Economics Discussion Papers 20/731, School of Economics, University of Bristol, UK.
    3. Nagler, Paula, 2015. "The impact of unemployment insurance savings accounts on subsequent employment quality," MERIT Working Papers 2015-026, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Mark Strøm Kristoffersen, 2012. "Business Cycle Dependent Unemployment Benefits with Wealth Heterogeneity and Precautionary Savings," Economics Working Papers 2012-19, Department of Economics and Business Economics, Aarhus University.
    5. Jan Eeckhout & Alireza Sepahsalari, 2024. "The Effect of Wealth on Worker Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(3), pages 1584-1633.

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    More about this item

    Keywords

    Equilibrium Search Model; Optimal Unemployment Insurance; Endogenous Saving;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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