Optimal Unemployment Insurance for Older Workers

Jean-Olivier Hairault, Francois Langot, Sébastien Ménard and Thepthida Sopraseuth

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper studies the optimal unemployment insurance for older workers in a repeated principal-agent model, where the search intensity of risk-averse workers (the agents) is not observed by the risk-neutral insurance agency (the principal). When unemployment benefits are the only available tool, the insurance agency is not able to induce older workers to search for a job. This is because of the short time-horizon of workers close to retirement. We propose to introduce a pension tax dependent on the length of the unemployment spell. We show that this device performs better than a wage tax after re-employment. First, it makes jobs more attractive, as they are free of tax. Second, because re-employment will be short-lived, a pension tax is a more powerful incentive than a wage tax, and provides more substantial fiscal gains to the agency. Finally, a pension tax allows those workers near retirement who still do not exercise job search to smooth their consumption during their unemployment spell, as if they could borrow against their future pension.

Keywords: Unemployment insurance; Retirement; Recursive contracts; Moral hazard (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-age, nep-cta, nep-dge, nep-ias and nep-lab
Note: View the original document on HAL open archive server: https://hal.science/hal-00668989v1
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Citations: View citations in EconPapers (4)

Published in Journal of Public Economics, 2012, 96 (5-6), pp.509-519. ⟨10.1016/j.jpubeco.2012.02.002⟩

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Related works:
Journal Article: Optimal unemployment insurance for older workers (2012)
Working Paper: Optimal unemployment insurance for older workers (2012)
Working Paper: Optimal Unemployment Insurance for Older Workers (2012)
Working Paper: Optimal Unemployment Insurance for Older Workers (2012)
Working Paper: Optimal unemployment insurance for older workers (2012)
Working Paper: Optimal Unemployment Insurance for Older Workers (2012)
Working Paper: Optimal Unemployment Insurance for Older Workers (2011)
Working Paper: Optimal Unemployment Insurance for Older Workers (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00668989

DOI: 10.1016/j.jpubeco.2012.02.002

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