Business Cycle Dependent Unemployment Insurance

Torben M Andersen and Michael Svarer

No 7334, CEPR Discussion Papers from Centre for Economic Policy Research

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 also an incentive argument. If benefits are less distortionary in a recession than a boom, it follows that countercyclical benefits reduce average distortions compared to state independent benefits. We show that optimal benefits are state contingent and tend to 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: H4 J6 (search for similar items in EconPapers)
Date: 2009-06
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 (2)

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Related works:
Working Paper: Business Cycle Dependent Unemployment Insurance (2010)
Working Paper: Business Cycle Dependent Unemployment Insurance (2010)
Working Paper: Business cycle dependent unemployment insurance (2009)
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