Seminar Papers, Institute for International Economic Studies, Stockholm University
Ramon Marimon and Fabrizio Zilibotti
Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits
Abstract: We develop an equilibrium search-matching model with
risk-neutral agents and two-sided ex-ante heterogeneity. Unemployment
insurance has the standard effect of reducing employment, but also helps
workers to get a suitable job. The predictions of our simple model are
consistent with the contrasting performance of the labour market in Europe
and US in terms of unemployment, productivity growth and wage inequality.
To show this, we construct two fictious economies with calibrated
parameters which only differ by the degree of unemployment insurance and
assume that they are hit by a common technological shock which enhances the
importance of mismatch. This shock reduces the proportion of jobs which
workers regard as acceptable in the economy with unemployment insurance
(Europe). As a result, unemployment doubles in this economy. In the
laissez-faire economy (US), unemployment remains constant, but wage
inequality increases more and productivity grows less due to larger
mismatch. The model is used to adress some political economy issues.
Keywords: Unemployment; Productivity; Mismatch; Ex-ante Heterogeneity; Search; Unemployment Benefits; Efficiency; Inequality; (follow links to similar papers)
JEL-Codes: D33; J64; J65; (follow links to similar papers)
41 pages, November 20, 1998
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