Unemployment insurance design: inducing moving and retraining

Hassler, John and Rodríguez Mora, José Vicente (2007) Unemployment insurance design: inducing moving and retraining. London, UK, Centre for Economic Policy Research, 49pp. (Discussion Papers in Economics and Econometrics, 0702).


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Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex-ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. In particular, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment benefits should increase over the unemployment spell, with an initial period with low benefits and an increase after this period has expired

Item Type: Monograph (Discussion Paper)
ISSNs: 0265-8003 (print)
Keywords: unemployment benefits, search, moral hazard, adverse selection
Subjects: H Social Sciences > HD Industries. Land use. Labor
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 47486
Accepted Date and Publication Date:
29 June 2007Published
Date Deposited: 01 Aug 2007
Last Modified: 31 Mar 2016 12:23
URI: http://eprints.soton.ac.uk/id/eprint/47486

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