A Positive Theory of Geographic Mobility and Social Insurance

John Hassler (), Sevi Rodríguez Mora (), Kjetil Storesletten () and Fabrizio Zilibotti ()

No 2964, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labour market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labour market into consideration. Agents with higher cost of moving, i.e. more attached to their current location, prefer more generous UI. The key assumption is that an agent’s attachment to a location increases the longer they have resided there. UI reduces the incentive for labour mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states one ‘European’ steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one ‘American’ steady-state featuring low unemployment, high mobility and low unemployment insurance.

Keywords: employment; geographical mobility; migration; political equilibrium; unemployment insurance; voting (search for similar items in EconPapers)
JEL-codes: D72 E24 J24 J64 J65 (search for similar items in EconPapers)
Date: 2001-09
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Related works:
Working Paper: A Positive Theory of Geographic Mobility and Social Insurance (2001)
Working Paper: A positive theory of geographical mobility and social insurance (2002)
Working Paper: A Positive Theory of Geographic Mobility and Social Insurance (2002)
Journal Article: A POSITIVE THEORY OF GEOGRAPHIC MOBILITY AND SOCIAL INSURANCE (2005)
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