Business Cycle Dependent Unemployment Insurance

Torben M. Andersen () and Michael Svarer
Additional contact information
Torben M. Andersen: Aarhus University

No 5196, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between “good” and “bad” states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.

Keywords: unemployment benefits; business cycle; insurance; incentives (search for similar items in EconPapers)
JEL-codes: H3 J6 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-09
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://docs.iza.org/dp5196.pdf (application/pdf)

Related works:
Working Paper: Business Cycle Dependent Unemployment Insurance (2010)
Working Paper: Business Cycle Dependent Unemployment Insurance (2009)
Working Paper: Business cycle dependent unemployment insurance (2009)
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:iza:izadps:dp5196

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().