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Employer screening and optimal unemployment insurance

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  • Meier, Mario
  • Obermeier, Tim

Abstract

Field experiments show that employers are less likely to consider long-term unemployed job seekers for interviews. We study the implications for optimal unemployment insurance. Based on a structural model of job search and recruitment, estimated with German data, we analyse the optimal two-tier unemployment system. We find that screening makes the optimal initial benefit level 4 percentage points higher and the potential benefit duration seven months longer. Using an extended Baily–Chetty formula, we study the mechanisms through which screening affects the consumption smoothing gain and moral hazard cost of providing unemployment insurance and highlight the role of the externality from endogenous firm behaviour.

Suggested Citation

  • Meier, Mario & Obermeier, Tim, 2024. "Employer screening and optimal unemployment insurance," LSE Research Online Documents on Economics 126865, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126865
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    File URL: http://eprints.lse.ac.uk/126865/
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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.
    2. Andreas Lichter, 2016. "Benefit Duration and Job Search Effort: Evidence from a Natural Experiment," NBER Chapters,in: Social Insurance Programs (Trans-Atlantic Public Economic Seminar - TAPES) National Bureau of Economic Research, Inc.
    3. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2018. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," American Economic Review, American Economic Association, vol. 108(4-5), pages 985-1033, April.
    4. Shuaizhang Feng & Lars Lefgren & Brennan C. Platt & Bingyong Zheng, 2019. "Job search under asymmetric information: endogenous wage dispersion and unemployment stigma," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 817-851, June.
    5. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1879-1901, November.
    6. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
    7. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Theory," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 152-181, May.
    8. Lichter, Andreas, 2016. "Benefit Duration and Job Search Effort: Evidence from a Natural Experiment," IZA Discussion Papers 10264, Institute of Labor Economics (IZA).
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    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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