Modelling Unemployment Insurance: A Survey

181 Pages·2022·2.14 MB·English

by  Paola Potestio

Contributions to Economics
Paola Potestio
Modelling
Unemployment
Insurance
A Survey
Contributions to Economics
TheseriesContributionstoEconomicsprovidesanoutletforinnovativeresearchin
allareasofeconomics.Bookspublishedintheseriesareprimarilymonographsand
multiple author works that present new research results on a clearly defined topic,
butcontributedvolumesandconferenceproceedingsarealsoconsidered.Allbooks
arepublishedinprintandebookanddisseminatedandpromotedglobally.Theseries
andthevolumespublishedinitareindexedbyScopusandISI(selectedvolumes).
Moreinformationaboutthisseriesathttps://link.springer.com/bookseries/1262
Paola Potestio
Modelling Unemployment
Insurance
A Survey
PaolaPotestio
DepartmentofEconomics
RomaTreUniversity
Roma,Roma,Italy
ISSN1431-1933 ISSN2197-7178 (electronic)
ContributionstoEconomics
ISBN978-3-030-91318-2 ISBN978-3-030-91319-9 (eBook)
https://doi.org/10.1007/978-3-030-91319-9
©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland
AG2022
Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether
thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof
illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and
transmission or information storage and retrieval, electronic adaptation, computer software, or by
similarordissimilarmethodologynowknownorhereafterdeveloped.
Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication
doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant
protectivelawsandregulationsandthereforefreeforgeneraluse.
The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this
bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor
theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany
errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional
claimsinpublishedmapsandinstitutionalaffiliations.
ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG.
Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland
To Pietro, Ester, Luciana and Alessandro
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 TheStartingPoints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 TheOptimalBenefitLevel:MartinNeilBaily(1978). . . . . . . . . . 7
2.2 TheTimeSequenceofUIBenefits:ShavellandWeiss(1979). . . . 10
2.3 JobSearchDecisions:DaleT.Mortensen(1977). . . . . . . . . . . . . 11
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 TheOptimalLevelofUnemploymentInsurance. . . . . . . . . . . . . . . . 15
3.1 ProductivityGainsfromanUnemploymentInsuranceSystem. . . . 15
3.1.1 UISystemsandProductiveEfficiency:Acemoglu
andShimer(1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1.2 ANoteontheQuantitativeRelevanceofProductivity
GainsfromaUISystem. . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.3 MoreontheAnalyticalIssueofProductivityGains
fromUIBenefits:DaronAcemoglu(2001). . . . . . . . . . . . 21
3.1.4 The‘SearchSubsidy’ProvidedbytheUISystem:
MarimonandZilibotti(1999). . . . . . . . . . . . . . . . . . . . . . 25
3.2 TheSufficientStatisticsApproachtotheAnalysisofOptimal
UIPolicy:Chetty’sContributions. . . . . . . . . . . . . . . . . . . . . . . . 29
3.2.1 TheGeneralizationofBaily’sResult:RayChetty(2006). . 29
3.2.2 MoralHazardandLiquidityEffectsintheDesignofthe
OptimalUIBenefits:RayChetty(2008). . . . . . . . . . . . . . 34
3.3 NewIssuesfortheDesignoftheOptimalLevel
ofUnemploymentInsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.3.1 Age-DependentStructureoftheOptimal
UnemploymentInsurance. . . . . . . . . . . . . . . . . . . . . . . . . 39
3.3.2 AssetTestingandUnemploymentInsuranceSystems. . . . . 41
3.3.3 TheOptimalUIDesigninthePresenceofBiased
Beliefs:Spinnewijn(2015). . . . . . . . . . . . . . . . . . . . . . . . 45
vii
viii Contents
3.4 ExternalitiesandCorrectionsofBaily-ChettyResult. . . . . . . . . . . 48
3.4.1 ANewandWiderMacroeconomicFramework
toDesigningOptimalUI:Landaisetal.(2018a,b). .. . . .. 48
3.4.2 UnemploymentInsuranceinthePresence
of‘NegativeDurationDependence’:Lehr(2016). . . . . . . . 54
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4 TheOptimalTimeProfileofUIPolicy. . . . . . . . . . . . . . . . . . . . . . . 59
4.1 TheOptimalTimeProfileofUIWithinaPartialEquilibrium
Setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.1.1 TheOptimalTimeSequenceofUIBenefits
andaTaxafterRe-employment. . . . . . . . . . . . . . . . . . . . 59
4.1.2 HumanCapitalDepreciation. . . . . . . . . . . . . . . . . . . . . . . 65
4.1.3 NewReferencesandIdeasforUIPolicy. . . . . . . . . . . . . . 72
4.1.4 NewScenariosinDesigningtheTimeProfile
ofUIPolicy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4.1.5 ReturningtotheTimeProfileofUnemployment
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.2 TheOptimalTimeSequenceofUIWithinaGeneral
EquilibriumSetting. . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . .. . 109
4.2.1 TheTimeProfileofUISchemawithinaGeneral
EquilibriumModelofSearchUnemployment:
FredrikssonandHolmlund(2001). . . . . . . . . . . . . . . . . . . 109
4.2.2 OptimalUIwithMonitoringandSanctionswithin
aGeneralEquilibriumModelofSearchUnemployment:
Booneetal.(2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
4.2.3 DoubtsaboutaDecreasingTimeProfileofUIBenefits
withinaGeneralEquilibriumSearchModel:
CahucandLehmann(2000). . . . . . . . . . . . . . . . . . . . . . . 116
4.2.4 StrategicWageBargainingandTimeProfileofUI
Benefits:ColesandMaster(2006). . . . . . . . . . . . . . . . . . 119
4.3 ANewDynamicDesignofanOptimalUIPolicy. . . . . . . . . . . . . 121
4.3.1 The“OptimalTiming”ofUIBenefits:
Kolsrudetal.(2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
5 UnemploymentInsuranceOvertheBusinessCycles. . . . . . . . . . . . . 129
5.1 BusinessCyclesandtheTimeSequenceofUIBenefits:
JuanSanchez(2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
5.2 UIandMarginalWelfareGainsOvertheBusinessCycle:
KoryKroftandMatthewNotowidigdo(2016). . . . . . . . . . . . . . . 133
5.3 BusinessCyclesandUnemploymentInsurancewithinaStatic
Model:TorbenAndersenandMichaelSvarer(2011). . . . . . . . . . 135
Contents ix
5.4 AGeneralEquilibriumApproachtotheUnemployment
InsurancePolicyOvertheBusinessCycle:KurtMitman
andStanislavRabinovich(2015). . . . . . . . . . . . . . . . . . . . . . . . . 140
5.5 BusisnessCyclesandUI:TheEmpiricalApplications
ofL-M-S(2018a)ModelofOptimalUI. . . . . . . . . . . . . . . . . . . . 143
5.6 TheOptimalUIPolicyintheFaceofaCovid-19-type
Recession:KurtMitmanandStanislavRabinovich(2021). . . . . . . 146
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
6 SomeFurtherNotesontheRoleoftheUISystem. . . . . . . . . . . . . . . 151
6.1 SelectedEmpiricalAnalyses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
6.2 OppositeForcesDrivingtheRe-employmentJobQuality:
NekoeiandWeber(2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
7 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Chapter 1
Introduction
1. “Job turnover is the rule rather than the exception in every labor market”, Dale
Mortensenwroteina1977articlethathasbeenabasicreferenceintheliterature
on unemployment insurance. The fluctuations in demand for individual indus-
tries, to which in particular Mortensen referred to, and the huge amount of
movements and specificities in the lives of firms are the basis for considering
jobturnoverasaphysiologicalfeatureofthelabormarket.Suchaconsiderationis
implicit in the words of Dale Mortensen. Naturally, job losses, spells of unem-
ployment,anddropsinconsumptionpossibilities,thatistheaspectsencompassed
in unemployment risk, are the other side of the coin of job turnover. The very
large exposure ofworkers ina marketeconomy to unemployment risk qualifies
those physiological events as social problems. In itself, the qualification only
impliestheverywideextentoftheproblems.Thisqualificationholdsevenwhile
recognizing that the great exposure to unemployment risk obviously does not
imply that this risk is uniformly spread. The specific risks of firms can also
differentiate the unemployment risk exposure of workers with identical
characteristics.
Historically,asolidarityprincipleor,later,socialwelfareconsiderationshaveledto
attribute to those problems the more specific value of problems pertaining to the
entire community, i.e. problems to be addressed with social interventions, with
socialinsurance programs.Thevirtualabsence ofprivateinsurance marketsinthis
area (an important issue for economic analysis) has greatly contributed to the
development of such programs. The historical roots of unemployment insurance
plansareverydistantintime.Apartfrominitiativesinthisdirectionundertakenby
individual cities or trade unions in Europe at the end of the nineteenth and early
twentieth centuries, the first national compulsory system was established in Great
Britainin1911andsubsequentlyinItalyandGermany(1927).IntheUnitedStates,
a state unemployment insurance plan was first adopted in Wisconsin in 1932. The
SocialSecurityAct,signedintolawbythePresidentRooseveltin1935,established
an unemployment insurance system based on a federal-state partnership. By 1937
©TheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerlandAG2022 1
P.Potestio,ModellingUnemploymentInsurance,ContributionstoEconomics,
https://doi.org/10.1007/978-3-030-91319-9_1