() and Bertil Holmlund
Peter Fredriksson: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Bertil Holmlund: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Abstract: Should unemployment compensation be paid indefinitely at a fixed rate or should it decline (or increase) over a worker’s unemployment spell? We examine these issues using an equilibrium model of search unemployment. The model features worker-firm bargaining over wages, free entry of new jobs, and endogenous search effort among the unemployed. The main result is that an optimal insurance program implies a declining sequence of unemployment compensation over the spell of unemployment. Numerical calibrations of the model suggest that there are non-trivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system.
33 pages, January 19, 1998
Full text files
OptUI_992.pdf Revised version
1998wp2.pdf Original version
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