The Implications of Labor Market Heterogeneity for Unemployment Insurance Design

Serdar Birinci and Kurt See

No 2024-026, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We estimate unemployment insurance (UI) eligibility, take-up, and replacement rates at the individual level and document how they vary with earnings, wealth, and unemployment duration. We extend a widely used framework that combines an incomplete-markets model with a frictional labor market to match our findings. We show that the optimal UI policy becomes substantially more generous. The gap between optimal policies in the two models is largely driven by endogenous UI take-up, which entails a utility cost: only those who value UI the most choose to take it. The welfare gains from insuring these workers outweigh losses from increased take-up.

Keywords: unemployment insurance; fiscal policy; household behavior; job search (search for similar items in EconPapers)
JEL-codes: E24 H31 J64 J65 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2024-09-19, Revised 2026-01-23
New Economics Papers: this item is included in nep-dge, nep-ipr and nep-lab
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Citations: View citations in EconPapers (1)

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DOI: 10.20955/wp.2024.026

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