THE SIMPLE ANALYTICS OF JOB DISPLACEMENT INSURANCE

Donald Parsons

Journal of Risk & Insurance, 2019, vol. 86, issue 2, 351-380

Abstract: Job displacement is a threat to the earnings of long‐tenured workers through (1) unemployment spells and (2) reduced reemployment wages. Although full insurance requires both unemployment benefits and wage insurance, supply difficulties limit actual‐loss insurance, and separation packages include partial unemployment insurance and scheduled (fixed sum) severance pay. The design of this two‐dimensional package requires a systems approach as well as a generalized replacement ratio measure of adequacy. Job search moral hazard and layoff moral hazard (firing costs) introduce serious contracting concerns. Economic theory provides a guide to the integration of these insurance instruments in this complex planning environment.

Date: 2019
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Working Paper: The Simple Analytics of Job Displacement Insurance (2016)
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