Optimal Life Cycle Unemployment Insurance
American Economic Review
vol. 105,
no. 2, February 2015
(pp. 816-59)
Abstract
We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)Citation
Michelacci, Claudio, and Hernán Ruffo. 2015. "Optimal Life Cycle Unemployment Insurance." American Economic Review, 105 (2): 816-59. DOI: 10.1257/aer.20111559Additional Materials
JEL Classification
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J13 Fertility; Family Planning; Child Care; Children; Youth
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings