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OPTIMAL UNEMPLOYMENT INSURANCE, WITH HUMAN CAPITAL DEPRECIATION, AND DURATION DEPENDENCE *
Author(s) -
Pavoni Nicola
Publication year - 2009
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2009.00532.x
Subject(s) - subsidy , unemployment , depreciation (economics) , economics , duration (music) , scheme (mathematics) , wage , labour economics , human capital , capital (architecture) , term (time) , microeconomics , macroeconomics , capital formation , mathematics , financial capital , art , mathematical analysis , history , physics , literature , archaeology , quantum mechanics , market economy , economic growth
This article introduces the possibility of a deterioration in job opportunities during unemployment into the standard optimal unemployment insurance (UI) design framework and characterizes the efficient UI scheme. The optimal program may display two novel features, which cannot be present in stationary models. First, UI transfers are bounded below by a minimal assistance level that arises endogenously in the efficient contract. Second, the optimal scheme implies a wage subsidy for long‐term unemployed workers. Numerical simulations based on the Spanish and U.S. economies suggest that both assistance transfers and wage subsidies should be part of the UI scheme in these countries.