Equilibrium Search with Time‐Varying Unemployment Benefits

Equilibrium Search with Time-Varying Unemployment Benefits∗

In this paper we show how time-varying unemployment benefits can generate equilibrium wage dispersion in an economy in which identical firms post wages and homogeneous risk-averse workers search for acceptable offers. We model a two-tier unemployment benefit system that is similar to real-world unemployment insurance programs. We assume that the unemployed initially receive benefits at rate b. ...

Optimal Unemployment Insurance in Search Equilibrium

Should unemployment benefits be paid indefinitely at a fixed rate or should it decline (or increase) over a worker’s unemployment spell? We examine these issues using an equilibrium model of search unemployment. The model features worker-firm bargaining over wages, free entry of new jobs, and endogenous search effort among the unemployed. The main result is that an optimal insurance program imp...

No. 2001-77 UNEMPLOYMENT VS. IN-WORK BENEFITS WITH SEARCH UNEMPLOYMENT AND OBSERVABLE ABILITIES

This paper explores the optimal interaction between the tax system and unemployment compensation in insuring people against the risks of involuntary unemployment and low ability. To that end, we introduce search unemployment in a model of optimal non-linear income taxation. We ...nd that the optimal search subsidy (i.e. the di¤erence between the in-work bene...t and the unemployment bene...t) i...

Measuring the Equilibrium Effects of Unemployment Benefits Dispersion

Equilibrium Unemployment

A search-theoretic model of equilibrium unemployment is constructed and shown to be consistent with the key regularities of the labor market and business cycle. The two distinguishing features of the model are: (i) the decision to accept or reject jobs is modeled explicitly, and (ii) markets are incomplete. The model is well suited to address a number of interesting policy questions. Two such a...