Optimal Unemployment Insurance for Older Workers

Jean-Olivier Hairault (), Francois Langot (), Sébastien Ménard () and Thepthida Sopraseuth ()
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Sébastien Ménard: GAINS, Université du Maine

No 4071, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper shows that optimal unemployment insurance contracts are age-dependent. Older workers have only a few years left on the labor market prior to retirement. This short horizon implies a more digressive replacement ratio. However, there is a sufficiently short distance to retirement for which flat unemployment benefits can be the optimal contract as the nearly retired unemployed workers rationally expect never to suffer from the punishment. This is why imposing a tax on the future job is particularly efficient in the context of older workers because the agency can now reward the job search by present employment subsidies. Moreover, we propose adopting a global approach to unemployment insurance by determining an optimal contract that integrates unemployment insurance and retirement pension systems.

Keywords: unemployment insurance; retirement; recursive contracts; moral hazard (search for similar items in EconPapers)
JEL-codes: C61 J64 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-cta, nep-dge, nep-ias and nep-lab
Date: 2009-03
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