Job Quality, Search, and Optimal Unemployment Contracts

Carlos Da Costa, Lucas Maestri and Cezar Santos

No 13974, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: When searching for employment, workers consider non-wage job characteristics, such as effort requirements or amenities. We study an environment where unemployed workers search for jobs of different quality in a labor market characterized by directed search. In equilibrium, firms are more likely to post vacancies for low-quality jobs, as these are more profitable. Hence, high-quality jobs are hard to come across. The non-observability of these employment contracts influences the optimal unemployment insurance (UI) program, leading to distortionary taxation. Calibrating the model to the U.S. economy, we find that non-observability of employment contracts results in faster declining UI benefits, steeper taxes upon re-employment, distortionary taxation, and a 10.5% costlier program than an observable contract scenario providing equal welfare.

JEL-codes: H21 J64 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-cta, nep-dge, nep-lab, nep-ltv and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13974

DOI: 10.18235/0013396

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