Unemployment Risks and Intra-Household Insurance

Javier Fernández-Blanco

No 1174, Working Papers from Barcelona School of Economics

Abstract: A spouse's income provides consumption insurance, but also increases the risks job-seekers take on in labor markets. We use a tractable directed search model with households to study how much public insurance should be provided in addition to the private insurance arrangements, and how it varies with the spouse's income. Private insurance is provided within the household through the spouse's labor supply and sought in the labor markets by applying to less risky jobs. Both insurance channels are used excessively in the laissez-faire equilibrium. In line with the empirical evidence, and in sharp contrast to the social planner's allocation, the equilibrium exhibits falling job-finding rates over the spouse's income distribution. If spouse's productivity is observable, the planner's allocation can be decentralized by implementing falling unemployment benefits.

Keywords: unemployment risks; intra-household risk-sharing; directed search; constrained; efficient insurance (search for similar items in EconPapers)
JEL-codes: J08 J22 J64 J65 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
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