Liquidity and insurance for the unemployed
Robert Shimer () and
No 366, Staff Report from Federal Reserve Bank of Minneapolis
We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, it is optimal to use a very simple policy: a constant benefit during unemployment, a constant tax during employment that does not depend on the duration of the spell, and free access to savings using a riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the welfare gains of more elaborate policies are minuscule. Our results highlight two largely distinct roles for policy toward the unemployed: (a) ensuring workers have sufficient liquidity to smooth their consumption; and (b) providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells.
Keywords: Insurance (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (28) Track citations by RSS feed
Downloads: (external link)
Journal Article: Liquidity and Insurance for the Unemployed (2008)
Working Paper: Liquidity and Insurance for the Unemployed (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:366
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Series data maintained by Janelle Ruswick ().