Liquidity and Insurance for the Unemployed

By Robert Shimer, I. Werning. 2008

231 citations recorded by the source corpus.

We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, a very simple policy is optimal: a constant benefit during unemployment, a constant tax during employment, and free access to savings using the riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the optimal policy involves nearly constant benefits and the welfare gains from more elaborate policies are minuscule. Our results highlight two distinct roles for policy toward the unemployed: ensuring workers have sufficient liquidity to smooth their consumption; and providing unemployment subsidies that serve as insurance against the uncertain duration of unemployment spells.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f7c6b0b8b830de8def99246937e4e926a8f5fc39

Citations in the corpus

• Knowledge of Future Job Loss and Implications for Unemployment Insurance (2017, unknown): “…Finkelstein, and Levin (2010): if private information prevents the existence of entire 5 In the UI context, see Baily (1978); Acemoglu and Shimer (1999, 2000); Chetty (2006, 2008); Shimer and Werning (2007, 2008); Blundell, Pistaferri, and Preston (2008); and Landais, Michaillat, and Saez (2010).”
• Social Insurance: Connecting Theory to Data (2012, unknown): “For example, Starc (2011) discusses how, when …rms have market power, moving from symmetric information to asymmetric information can improve consumer welfare.”
• Joint-Search Theory: New Opportunities and New Frictions (2009, unknown): “Subtracting equation (33) from the equation defining ŵS , we get ŵS − w∗ = κ+ αi r ∫ w∗ ŵS−κ [1− F (w)] dw + αo r ∫ w∗”
• Labor Market Effects of Unemployment Insurance Design (2014, unknown): “Recent research has allowed for borrowing and savings, which means that the employment agency cannot influence the consumption profile of the unemployed worker through a declining benefit profile (e.g. Chetty, 2008; Pavoni, 2007; Shimer and Werning, 2008).”
• Macroeconomic Evaluation of Labor Market Reform in Germany (2013, unknown): “There is large literature on optimal unemployment insurance (Hopenhayn and Nicolini, 1997; Shimer and Werning, 2008) that allows government policy to be a general function of observable variables.”
• Optimal Welfare-to-Work Programs (2007, unknown): “Recently, several authors have begun to analyze dynamic moral hazard models with hidden savings (Werning, 2002; Kocherlakota, 2003; Shimer and Werning, 2003; Abraham and Pavoni, 2004).”
• The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation (2016, unknown): “If the unemployed have savings at the beginning of the unemployment spell the optimal benefit path may be a constant level of benefits paid indefinitely, as suggested by Kocherlakota (2004) and Shimer and Werning (2008).”
• Optimal unemployment insurance in an equilibrium business-cycle model (2015, unknown): “Kroft and Notowidigdo (2010) examine optimal state-contingent UI in a principal-agent framework, extending the approach of Baily (1978), Shavell and Weiss (1979), Hopenhayn and Nicolini (1997), and Shimer and Werning (2008).”
• Does Extending Unemployment Benefits Improve Job Quality? (2017, unknown): “For study of an optimal dynamic of benefits, see Shavell and Weiss (1979), Hopenhayn and Nicolini (1997) and Shimer and Werning (2008).”