Productivity insurance: The role of unemployment benefits in a multi-sector model

David Fuller, Marianna Kudlyak and Damba Lkhagvasuren

Journal of Economic Dynamics and Control, 2014, vol. 47, issue C, 39-53

Abstract: We construct a multi-sector search and matching model where the unemployed receives idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits – productivity insurance while unemployed. For plausible parameterizations unemployment benefits increase per-worker productivity. In addition, the welfare-maximizing benefit level decreases as moving costs increase.

Keywords: Unemployment insurance; Search; Mobility; Productivity; Multi-sector model; Sectoral mismatch (search for similar items in EconPapers)
JEL-codes: J62 J63 J64 J65 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Productivity insurance: the role of unemployment benefits in a multi-sector model (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:47:y:2014:i:c:p:39-53

DOI: 10.1016/j.jedc.2014.07.015

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