Temporary Layoffs and Unemployment Insurance: A Supply side Macro Model

Troels Østergaard Sørensen
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Troels Østergaard Sørensen: Institute of Economics, University of Copenhagen

No 90-17, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: In Feldstein (1976) the effects of the unemployment insurance (UI) system on employment and unemployment are discussed. Feldstein's model is a pure micro model of a single firm, and the firm size is exogeneously given. In this paper the effects of the UI system is discussed in a dynamic micro model of optimal firm behaviour, when the firm is given an option to choose its labor force. Further, a supply side macro model based on the developed micro behaviour is analysed. An increase in the benefit level (decrease in experience rating) will increase total unemployment in the model. The level of temporary layoffs will increase but "outside unemployment" will decrease. the effects on the public sector budget balance will be ambiguous.

Pages: 13 pages
Date: 1990-11
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9017

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