Does incomplete take-up matter? The case of Unemployment Insurance

Luis Guimarães and Diogo Lourenço

MPRA Paper from University Library of Munich, Germany

Abstract: Only a few of the eligible take up Unemployment Insurance (UI). Yet, the literature evaluating UI in macroeconomic settings typically assumes that take-up is costless and complete. We show that this assumption leads to an overestimation of UI’s net welfare gains in a general equilibrium model with incomplete markets. In fact, when we account for incomplete take-up, we find that the current UI program lowers welfare in the US. Take-up costs are key: they lower individual net gains from UI to the extent that they fail to outweigh the program’s aggregate distortions. Suitably reformed, UI could slightly increase welfare. A uniform transfer of about USD 500 for 14 months to UI recipients would discourage take-up among the better off, reducing distortions and take-up costs, and enhancing redistribution.

Keywords: Unemployment Insurance; Take-up; Welfare; Take-up costs (search for similar items in EconPapers)
JEL-codes: D52 E21 H24 J21 J64 J65 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:128341

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