On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation

Robert Shimer and Iván Werning

No 12230, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the optimal timing of unemployment insurance subsidies in a McCall search model. Risk-averse workers sequentially sample random job opportunities. Our model distinguishes unemployment subsidies from consumption during unemployment by allowing workers to save and borrow freely. When the insurance agency faces a group of homogeneous workers solving stationary search problems, the optimal subsidies are independent of unemployment duration. In contrast, when workers are heterogeneous or when human capital depreciates during the spell, the optimal subsidy is no longer constant. We explore the main determinants of the shape of the optimal subsidy schedule, isolating forces for subsidies to optimally rise or fall with duration.

JEL-codes: J6 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-dge, nep-hrm and nep-lab
Note: EFG LS PE
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Citations: View citations in EconPapers (43)

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