Talent discovery, layoff risk and unemployment insurance

Marco Pagano and Luca Picariello

European Economic Review, 2023, vol. 154, issue C

Abstract: In talent-intensive jobs, workers’ quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. We show that, if firms compete for talent, they cannot insure workers against this risk, so that the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Our model predicts that public unemployment insurance corrects this inefficiency, increasing employment in talent-sensitive industries. This prediction is consistent with the distribution of U.S. employment across occupations and states. Unemployment insurance dominates legal restrictions on firms’ dismissals, which penalize more talent-sensitive firms and thus depress expected productivity.

Keywords: Talent; Learning; Layoff risk; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: D83 J24 J63 J65 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Talent Discovery, Layoff Risk and Unemployment Insurance (2023)
Working Paper: Talent Discovery, Layoff Risk and Unemployment Insurance (2018)
Working Paper: Talent discovery, layoff risk and unemployment insurance (2018)
Working Paper: Talent Discovery, Layoff Risk and Unemployment Insurance (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292123000351

DOI: 10.1016/j.euroecorev.2023.104406

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