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Job Quality, Search, and Optimal Unemployment Contracts

Author

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  • Da Costa, Carlos
  • Maestri, Lucas
  • Santos, Cezar

Abstract

When searching for employment, workers consider non-wage job characteristics, such as effort requirements or amenities. We study an environment where unemployed workers search for jobs of different quality in a labor market characterized by directed search. In equilibrium, firms are more likely to post vacancies for low-quality jobs, as these are more profitable. Hence, high-quality jobs are hard to come across. The non-observability of these employment contracts influences the optimal unemployment insurance (UI) program, leading to distortionary taxation. Calibrating the model to the U.S. economy, we find that non-observability of employment contracts results in faster declining UI benefits, steeper taxes upon re-employment, distortionary taxation, and a 10.5% costlier program than an observable contract scenario providing equal welfare.

Suggested Citation

  • Da Costa, Carlos & Maestri, Lucas & Santos, Cezar, 2025. "Job Quality, Search, and Optimal Unemployment Contracts," IDB Publications (Working Papers) 13974, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:13974
    DOI: http://dx.doi.org/10.18235/0013396
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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