On the Provision of Unemployment Insurance when Workers are Ex-ante Heterogeneous

Avihai Lifschitz, Ofer Setty and Yaniv Yedid-Levi
Additional contact information
Avihai Lifschitz: Tel Aviv University

No 391, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Labor market outcomes demonstrate considerable variation between and within skill groups. We construct a general equilibrium model with incomplete markets and exogenous differences that matches these facts. We study the role of exogenous heterogeneity in choosing the optimal re- placement rate and the maximum benefit for an unemployment insurance (UI) system. The optimal average replacement rate is 54%, compared to 10% in a model without the features of exogenous heterogeneity. The relatively generous choice in our model is due to the redistributive role of UI – a manifestation of two elements. First, workers who are unemployed more often receive positive net transfers from the UI system because they draw resources more frequently. Second, the existence of a cap makes UI benefits progressive. Our main result holds even in the presence of a generous progressive taxation system.

Date: 2019
New Economics Papers: this item is included in nep-dge, nep-ias and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_391.pdf (application/pdf)

Related works:
Journal Article: On the Provision of Unemployment Insurance when Workers are Ex-Ante Heterogeneous (2021)
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:red:sed019:391

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().