EconPapers    
Economics at your fingertips  
 

Search frictions, real wage rigidities and the optimal design of unemployment insurance

Julien Albertini () and Xavier Fairise ()

Working Papers from HAL

Abstract: In this paper, we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions. The US unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits. Using DSGE methodology, we investigate how policy instruments should interact with labor market imperfections. It is shown that wage rigidities in a search and matching environment cause welfare costs, especially in the absence of an incentive-based unemployment insurance. This cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations. We show that the optimal unemployment benefits financing scheme - corresponding to the Ramsey policy - offsets labor market imperfections and allows implementation of the Pareto allocation. The second-best allocation brings the economy close to the Ramsey allocation. The implementation of the optimal policies clearly highlights the role of labor market institutions for short-run stabilization.

Keywords: DSGE models; search and matching frictions; layoff tax; wage rigidities (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
Date: 2013-03
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00870055
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
https://halshs.archives-ouvertes.fr/halshs-00870055/document (application/pdf)

Related works:
Journal Article: Search frictions, real wage rigidities and the optimal design of unemployment insurance (2013) Downloads
Working Paper: Search frictions, real wage rigidities and the optimal design of unemployment insurance (2013)
Working Paper: Search frictions, real wage rigidities and the optimal design of unemployment insurance (2013) Downloads
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:hal:wpaper:halshs-00870055

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2019-11-06
Handle: RePEc:hal:wpaper:halshs-00870055