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Talent Discovery, Layoff Risk and Unemployment Insurance

Marco Pagano and Luca Picariello

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In talent-intensive jobs, workers' quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. We show that, if firms compete for talent, they cannot insure workers against this risk, so that the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Our model predicts that public unemployment insurance corrects this inefficiency, increasing employment in talent-sensitive industries. This prediction is consistent with the distribution of U.S. employment across occupations and states. Unemployment insurance dominates legal restrictions on firms' dismissals, which penalize more talentsensitive firms and thus depress expected productivity.

Keywords: talent; learning; layoff risk; unemployment insurance. (search for similar items in EconPapers)
JEL-codes: D83 J24 J63 J65 (search for similar items in EconPapers)
Date: 2017-08-01, Revised 2023-02-15
New Economics Papers: this item is included in nep-hrm, nep-ias, nep-lab and nep-ltv
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http://www.csef.it/WP/wp480.pdf (application/pdf)

Related works:
Journal Article: Talent discovery, layoff risk and unemployment insurance (2023) Downloads
Working Paper: Talent Discovery, Layoff Risk and Unemployment Insurance (2018) Downloads
Working Paper: Talent discovery, layoff risk and unemployment insurance (2018) Downloads
Working Paper: Talent Discovery, Layoff Risk and Unemployment Insurance (2017) Downloads
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