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Unemployment Risks and Intra-Household Insurance

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  • Javier Fernández-Blanco

Abstract

A spouse's income provides consumption insurance, but also increases the risks job-seekers take on in labor markets. We use a tractable directed search model with households to study how much public insurance should be provided in addition to the private insurance arrangements, and how it varies with the spouse's income. Private insurance is provided within the household through the spouse's labor supply and sought in the labor markets by applying to less risky jobs. Both insurance channels are used excessively in the laissez-faire equilibrium. In line with the empirical evidence, and in sharp contrast to the social planner's allocation, the equilibrium exhibits falling job-finding rates over the spouse's income distribution. If spouse's productivity is observable, the planner's allocation can be decentralized by implementing falling unemployment benefits.

Suggested Citation

  • Javier Fernández-Blanco, 2020. "Unemployment Risks and Intra-Household Insurance," Working Papers 1174, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1174
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    References listed on IDEAS

    as
    1. Rasmus Lentz, 2009. "Optimal Unemployment Insurance in an Estimated Job Search Model with Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 37-57, January.
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    More about this item

    Keywords

    unemployment risks; intra-household risk-sharing; directed search; constrained; efficient insurance;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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