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Optimal Unemployment Insurance: How Important is the Demand Side?

Rune Vejlin

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

Abstract: I develop and simulate an equilibrium model of search with endogenous savings and search intensity. The wage offer distribution is endogenized by firms making vacancy and entry choices. This allows me to conduct a counterfactual analysis of the optimal unemployment insurance (UI) level. The provision of UI is motivated by the worker's inability to perfectly insure against income shocks, but at the same time UI introduces a distortion to the level of search intensity of the worker and vacancy intensity of firms. I find that equilibrium effects are important to take into account. Making policy from a partial model can introduce large welfare loses. It is also shown that different kinds of taxes have different implications on welfare.

Keywords: Equilibrium Search Model; Optimal Unemployment Insurance; Endogenous Saving (search for similar items in EconPapers)
JEL-codes: D3 D9 E2 E61 J6 (search for similar items in EconPapers)
Pages: 54
Date: 2011-03-11
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: OPTIMAL UNEMPLOYMENT INSURANCE: HOW IMPORTANT IS THE DEMAND SIDE? (2017) Downloads
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