Unemployment insurance with endogenous search intensity and precautionary saving

James Costain

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: A welfare analysis of unemployment insurance (UI) is performed in a general equilibrium job search model. Finitely-lived, risk-averse workers smooth consumption over time by accumulating assets, choose search effort when unemployed, and suffer disutility from work. Firms hire workers, purchase capital, and pay taxes to finance worker benefits; their equity is the asset accumulated by workers. A matching function relates unemployment, hiring expenditure, and search effort to the formation of jobs. The model is calibrated to US data; the parameters relating job search effort to the probability of job finding are chosen to match microeconomic studies of unemployment spells. Under logarithmic utility, numerical simulation shows rather small welfare gains from UI. Even without UI, workers smooth consumption effectively through asset accumulation. Greater risk aversion leads to substantially larger welfare gains from UI; however, even in this case much of its welfare impact is due not to consumption smoothing effects, but rather to decreased work disutility, or to a variety of externalities.

Keywords: Unemployment insurance; matching; search effort; moral hazard; precautionary saving; prudence; life cycle (search for similar items in EconPapers)
JEL-codes: E21 J22 J64 J65 (search for similar items in EconPapers)
Date: 1997-11
New Economics Papers: this item is included in nep-dge, nep-ltv and nep-pub
References: Add references at CitEc
Citations: View citations in EconPapers (60)

Downloads: (external link)
https://econ-papers.upf.edu/papers/243.pdf Whole Paper (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:243

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by (william.carlson@upf.edu this e-mail address is bad, please contact repec@repec.org).