Scandinavian Working Papers in Economics
Seminar Papers,
Stockholm University, Institute for International Economic Studies
No 665: Equilibrium Unemployment Insurance
John Hassler (), José Mora (), Kjetil Storesletten () and Fabrizio Zilibotti ()
Additional contact information
John Hassler: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
José Mora: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Kjetil Storesletten: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Fabrizio Zilibotti: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Abstract: In this paper, we introduce a positive theory of unemployement insurance into a dynamic overlapping generations model with search-matching frictions and on-the-job learning-by-doing. The model shows that societies populated by identical rational agents, but differing in the initial distribution of human capital accross agents, may choose very different unemployment insurance levels into a politico-economic equilibrium. The interaction between the political decision about the level of the unemployment insurance and the optimal search behavior of the unemployed gives rise to a self-reinforcing mechanism which may generate multiple steady-state equilibria. In particular, a European-type steady-state with high unemployment, low employment turnover and high insurance can co-exist with an American-type steady state with low unemployment, high employment turnover and low unemployment insurance. A calibrated version of the model features two distinct steady-state equilibria with unemployment levels and duration rates resembling those of the US and Europe respectively.
Keywords: Comparative Advatage; Employment; Political Equilibrium; Search; Specialization; Unemployment Insurance
JEL-codes: D72; E21; E24; J21; J24; J31; J64; J65
55 pages, January 28, 1999
Full text files
FULLTEXT01
- Stockholm University, Institute for International Economic Studies
- Ordering Working Papers
- Home page for this series
Questions (including download problems) about the papers in this series should be directed to Hanna Christiansson ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:iiessp:0665This page generated on 2024-09-13 22:15:25.