A macroeconomic approach to optimal unemployment insurance: theory

Camille Landais, Pascal Michaillat and Emmanuel Saez

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper develops a theory of optimal unemployment insurance (UI) in matching models. The optimal UI replacement rate is the conventional Baily-Chetty replacement rate, which solves the tradeoff between insurance and job-search incentives, plus a correction term, which is positive when an increase in UI pushes the labor market tightness toward its efficient level. In matching models, most wage mechanisms do not ensure efficiency, so tightness is generally inefficient. The effect of UI on tightness depends on the model: increasing UI may raise tightness by alleviating the rat race for jobs or lower tightness by increasing wages through bargaining.

JEL-codes: J1 (search for similar items in EconPapers)
Date: 2018-05-01
New Economics Papers: this item is included in nep-dge and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (89)

Published in American Economic Journal: Economic Policy, 1, May, 2018, 10(2), pp. 152-181. ISSN: 1945-7731

Downloads: (external link)
http://eprints.lse.ac.uk/88304/ Open access version. (application/pdf)

Related works:
Journal Article: A Macroeconomic Approach to Optimal Unemployment Insurance: Theory (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:88304

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().