Unemployment Insurance when the Wealth Distribution Matters

Facundo Piguillem, Hernán Ruffo and Nicholas Trachter

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: This paper analyzes the welfare effects of unemployment insurance in a life-cycle model, focusing on partial vs. general equilibrium effects. We study an OLG economy with learning-by-doing human capital accumulation. Agents can be employed or unemployed. While unemployed agents costly search for new jobs. We calibrate the model to the U.S. economy, and find that replacement ratio and potential duration are close to the current one. But, in contrast with the previous literature, we find that the optimal policies under general and partial equilibrium are almost the same. Through a series of exercises we conclude that the life-cycle model provides two key components, crucial for welfare evaluation: it emphasizes workers’ insurance needs by accurately reproducing the left tail of the wealth distribution, and generates a realistic response of precautionary savings to transfers.

Keywords: Unemployment insurance; Human capital; Life cycle; Wealth inequality; General equilibrium. (search for similar items in EconPapers)
JEL-codes: E24 E62 H21 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2023-04
New Economics Papers: this item is included in nep-dge
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Working Paper: Unemployment Insurance when the Wealth Distribution Matters (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2023_02

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