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A Context-Robust Measure of the Disincentive Cost of Unemployment Insurance

Johannes Schmieder and Till von Wachter

American Economic Review, 2017, vol. 107, issue 5, 343-48

Abstract: This paper proposes a new measure of the disincentive cost of unemployment insurance (UI): the ratio of the behavioral cost (BC) to the mechanical cost (MC) of a UI reform. This measure represents the labor supply distortion relative to the additional (mechanical) transfer from the UI reform. We show the BC/MC ratio naturally arises from a model of optimal UI and can be readily computed and compared across different types of reforms and labor market contexts. We summarize the evidence regarding the BC/MC ratio for existing studies and relate it to typical measures of employment effects of UI.

JEL-codes: J22 J65 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.p20171026
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Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:343-48