Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 11/2017: Talent Discovery, Layoff Risk and Unemployment Insurance.

Marco Pagano () and Luca Picariello ()
Additional contact information
Marco Pagano: University of Naples Federico II, Postal: Naples, Italy
Luca Picariello: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: In talent-intensive jobs, workers’ performance reveals their quality. This enhances productivity and wages, but also increases layoff risk. If workers cannot resign from their jobs, firms can insure them via severance pay. If instead workers can resign, private insurance cannot be provided, and more risk-averse workers will choose less informative jobs. This lowers expected Productivity and wages. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries and investment in education by employees. The prediction that the generosity of unemployment insurance is positively correlated with the share of workers in talent-sensitive industries is consistent with international and U.S. evidence.

Keywords: Talent; Learning; layoff risk; unemployment insurance

JEL-codes: D61; D62; D83; I26; J24; J65

39 pages, August 1, 2017

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