Unemployment insurance design: inducing moving and retraining
Unemployment insurance design: inducing moving and retraining
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
unemployment benefits, search, moral hazard, adverse selection
Centre for Economic Policy Research
Hassler, John
4342a8e4-be19-467d-903b-b392d86bc5e6
Rodríguez Mora, José Vicente
721b2d66-c1aa-4bbb-812b-f72d7d5377c8
29 June 2007
Hassler, John
4342a8e4-be19-467d-903b-b392d86bc5e6
Rodríguez Mora, José Vicente
721b2d66-c1aa-4bbb-812b-f72d7d5377c8
Hassler, John and Rodríguez Mora, José Vicente
(2007)
Unemployment insurance design: inducing moving and retraining
(Discussion Papers in Economics and Econometrics, 702)
London, UK.
Centre for Economic Policy Research
49pp.
Record type:
Monograph
(Discussion Paper)
Abstract
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
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Published date: 29 June 2007
Keywords:
unemployment benefits, search, moral hazard, adverse selection
Identifiers
Local EPrints ID: 47486
URI: http://eprints.soton.ac.uk/id/eprint/47486
ISSN: 0265-8003
PURE UUID: 14cbdc45-29cd-4334-adf1-1a0be677559a
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Date deposited: 01 Aug 2007
Last modified: 15 Mar 2024 09:33
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Contributors
Author:
John Hassler
Author:
José Vicente Rodríguez Mora
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