The Great Resignation and Optimal Unemployment Insurance

Zhifeng Cai and Jonathan Heathcote

No 652, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: How generous should social insurance be when quits account for a large share of transitions into non-employment? We address this question using a multi-sector directed search model extended to incorporate endogenous quits both to other jobs and to non-employment. Workers quit too often in the competitive equilibrium, and private markets co-ordinate on excessively high “efficiency” wages. Quantitatively, we find that unemployment insurance is optimally much less generous in an economy with quits than in one without. An extended Baily-Chetty formula is derived to illustrate the source of this difference.

Keywords: Directed search; Quits; Great Resignation; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: E24 J31 J64 J65 (search for similar items in EconPapers)
Date: 2023-10-16
New Economics Papers: this item is included in nep-dge and nep-lab
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Working Paper: The Great Resignation and Optimal Unemployment Insurance (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:97206

DOI: 10.21034/sr.652

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