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Optimal Life Cycle Unemployment Insurance

Claudio Michelacci () and Hernán Ruffo ()

No 10167, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.

Keywords: insurance; search; unemployment (search for similar items in EconPapers)
JEL-codes: E24 H21 J64 J65 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-age, nep-dge, nep-ias, nep-lab and nep-mac
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Journal Article: Optimal Life Cycle Unemployment Insurance (2015) Downloads
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