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Optimal unemployment insurance design: Time limits, monitoring, or workfare?

Peter Fredriksson and Bertil Holmlund

International Tax and Public Finance, 2006, vol. 13, issue 5, 565-585

Abstract: This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity in preferences for leisure. The analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems. Copyright Springer Science + Business Media, LLC 2006

Keywords: Unemployment insurance; Search; Monitoring; Sanctions; Workfare (search for similar items in EconPapers)
Date: 2006
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Working Paper: Optimal unemployment insurance design: time limits, monitoring, or workfare? (2005) Downloads
Working Paper: Optimal Unemployment Insurance Design:Time Limits, Monitoring, or Workfare? (2003) Downloads
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