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Unemployment insurance and home production

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  • Taskin, Temel

Abstract

In this paper, we incorporate home production into a quantitative model of unemployment and show that realistic levels of home production have a significant impact on the optimal unemployment insurance rate. Motivated by recently documented empirical facts, we augment an incomplete markets model of unemployment with a home production technology, which allows unemployed workers to use their extra non-market time as partial insurance against the drop in income due to unemployment. In the benchmark model, we find that the optimal replacement rate in the presence of home production is roughly 40% of wages, which is 40% lower than the no home production model’s optimal replacement rate of 65%. The 40% optimal rate is also close to the estimated rate in practice. The fact that home production makes a significant difference in the optimal unemployment insurance rate is robust to a variety of parameterizations and alternative model environments.

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  • Taskin, Temel, 2011. "Unemployment insurance and home production," MPRA Paper 34878, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:34878
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    Cited by:

    1. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    2. Mark A. Aguiar & Erik Hurst & Loukas Karabarbounis, 2011. "Time Use During Recessions," NBER Working Papers 17259, National Bureau of Economic Research, Inc.
    3. Juliana MESÉN VARGAS & Bruno VAN DER LINDEN, 2017. "Is there always a trade-off between insurance and incentives? The case of unemployment with subsistence constraints," LIDAM Discussion Papers IRES 2017014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Guler, Bulent & Taskin, Temel, 2013. "Does unemployment insurance crowd out home production?," European Economic Review, Elsevier, vol. 62(C), pages 1-16.
    5. Alan B. Krueger & Andreas I. Mueller, 2012. "Time Use, Emotional Well-Being, and Unemployment: Evidence from Longitudinal Data," American Economic Review, American Economic Association, vol. 102(3), pages 594-599, May.

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    More about this item

    Keywords

    Unemployment insurance; home production; incomplete markets; self-insurance;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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