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Optimal Unemployment Insurance Design:Time Limits, Monitoring, or Workfare?

Peter Fredriksson and Bertil Holmlund

No 2003:17, Working Paper Series from Uppsala University, Department of Economics

Abstract: This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity, which takes the form of differences in preferences for leisure. All the instruments are ways of limiting the duration of UI benefit receipt and the model can be used to compare them in a coherent fashion. The analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems.

Keywords: Unemployment insurance; search; monitoring; sanctions; workfare (search for similar items in EconPapers)
JEL-codes: J64 J65 J68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-ltv
Date: 2003-06-25
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Published in International Tax and Public Finance, 2006, pages 565-585.

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Related works:
Journal Article: Optimal unemployment insurance design: Time limits, monitoring, or workfare? (2006) Downloads
Working Paper: Optimal unemployment insurance design: time limits, monitoring, or workfare? (2005) Downloads
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