Duration Dependent UI Payments and Long-Term Unemployment
نویسندگان
چکیده
Matching frictions imply the value of being unemployed depends on the stream of future UI payments. The sooner a worker's eligibility to UI payments expires, the lower the value to remaining unemployed. In the moral hazard literature, declining UI payments are used to trigger greater search e®ort. Here declining UI payments undermine the worker's bargaining position and (partially) corrects the wage distortion created by a UI system when wages are not competitively determined. Using a model of skill decline while unemployed, simulations show that, consistent with data, the duration of UI payments has a large signi ̄cant e®ect on long term unemployment.
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