EconPapers    
Economics at your fingertips  
 

Liquidity and insurance for the unemployed

Robert Shimer () and Iván Werning

No 366, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: 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
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (27) Track citations by RSS feed

Downloads: (external link)
http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1048
http://www.minneapolisfed.org/research/SR/SR366.pdf (application/pdf)

Related works:
Journal Article: Liquidity and Insurance for the Unemployed (2008) Downloads
Working Paper: Liquidity and Insurance for the Unemployed (2005) Downloads
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: http://EconPapers.repec.org/RePEc:fip:fedmsr:366

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

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 ().

 
Page updated 2014-12-13
Handle: RePEc:fip:fedmsr:366