Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy
Optimal unemployment insurance design: time limits, monitoring, or workfare?
() and Bertil Holmlund
Abstract: This paper analyses crucial design features of
unemployment insurance (UI) policies. We examine three different means of
improving the efficiency of UI: the duration of benefit payments,
monitoring in conjunction with sanctions, and workfare. To that end we
develop a quantitative model of equilibrium unemployment. The model
features worker heterogeneity in preferences for leisure. The numerical
analysis suggests that a system with monitoring and sanctions restores
search incentives most effectively, since it brings additional incentives
to search actively so as to avoid the sanction. Therefore, the UI provider
can offer a more generous UI replacement rate in a system with monitoring
and sanctions than in the other two systems. Workfare appears to be
inferior to the other two systems.
Keywords: Unemployment insurance; search equilibrium; time limits; monitoring and sanctions; workfare; (follow links to similar papers)
JEL-Codes: J64; J68; (follow links to similar papers)
33 pages, May 12, 2005
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- This paper is published as:
Fredriksson, Peter and Bertil Holmlund, (2006), 'Optimal unemployment insurance design: time limits, monitoring, or workfare?', International Tax and Public Finance, pages 565-585
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