Running Out of Time: Limited Unemployment Benefits and Reservation Wages
Serife Akin and
Review of Economic Dynamics, 2012, vol. 15, issue 2, 149-170
We study unemployment insurance (UI) in an equilibrium environment in which unemployed workers only receive benefits for a finite length of time. Although all workers have identical productivity and leisure value, the random arrival of job offers creates ex-post differences with respect to their time remaining until benefit expiration. Firms, which are also homogeneous, can exploit these differences, leading to an endogenous wage distribution. This allows us to examine the equilibrium effect of policy changes in both the size and length of UI benefits. Surprisingly, an increase in benefits can actually cause wages to fall, which is contrary to the predictions of on-the-job-search models. Moreover, we explain well-documented patterns of how the hazard rate of exiting unemployment responds to these policy changes. Our theory also explains why this hazard rate jumps at the time of benefit exhaustion. (Copyright: Elsevier)
Keywords: Unemployment benefits; Potential benefit duration; Wage dispersion; Equilibrium search; Hazard rates (search for similar items in EconPapers)
JEL-codes: J64 J65 D5 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (12) Track citations by RSS feed
Downloads: (external link)
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.
Software Item: Code and data files for "Running Out of Time: Limited Unemployment Benefits and Reservation Wages" (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:issued:10-201
Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/
Access Statistics for this article
Review of Economic Dynamics is currently edited by Jonathan Heathcote and Vincenzo Quadrini
More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Series data maintained by Christian Zimmermann ().