Business Cycle Dependent Unemployment Insurance

Torben M. Andersen (tandersen@econ.au.dk) and Michael Svarer
Additional contact information
Torben M. Andersen: School of Economics and Management, Aarhus University, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between "good" and "bad" states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.

Keywords: Unemployment benefits; business cycle; insurance; incentives (search for similar items in EconPapers)
JEL-codes: H3 J6 (search for similar items in EconPapers)
Pages: 37
Date: 2010-09-15
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
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Citations: View citations in EconPapers (14)

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https://repec.econ.au.dk/repec/afn/wp/10/wp10_16.pdf (application/pdf)

Related works:
Working Paper: Business Cycle Dependent Unemployment Insurance (2010)
Working Paper: Business Cycle Dependent Unemployment Insurance (2009)
Working Paper: Business cycle dependent unemployment insurance (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2010-16

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