Universal Basic Income versus Unemployment Insurance

Alice Fabre, Stephane Pallage and Christian Zimmermann

No 8667, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we compare the welfare effects of unemployment insurance (UI) with a universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do a better job at protecting the unemployed, it suffers from moral hazard and substantial monitoring costs, which may threaten its usefulness. The universal basic income, which is simpler to manage and immune to moral hazard, may represent an interesting alternative in this context. We work within a dynamic equilibrium model with savings calibrated to the United States for 1990 and 2011, and provide results that show that UI beats UBI for insurance purposes because it is better targeted towards those in need.

Keywords: universal basic income; idiosyncratic shocks; unemployment insurance; heterogeneous agents; moral hazard (search for similar items in EconPapers)
JEL-codes: D7 E24 J65 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-11
New Economics Papers: this item is included in nep-ias, nep-lab, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
Working Paper: Universal Basic Income versus Unemployment Insurance (2014)
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