When Might Unemployment Insurance Matter?

Thomas Crossley () and Hamish Low

Department of Economics Working Papers from McMaster University

Abstract: Unemployment insurance is more valuable when self-insurance is more diffcult. Self-insurance is more viable when the cost of borrowing and the cost of saving are low. The cost of savings depends on the timing of income and the timing of needs, as well as private and market discount rates. Heterogeneity in any of these factors translates into heterogeneity in the cost of saving and thus in the value of unemployment insurance. We develop a life-cycle model to illustrate these connections. We then provide empirical evidence on the extent of credit constraints and heterogeneity in the cost of saving among job losers. Among job losers, 25% do not have access to credit markets. Liquid assets that can be used to buffer employment shocks are lower for households with children (high needs). Among older households, those with illiquid pension wealth have less liquid wealth.

JEL-codes: D91 H53 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2004-04

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