A quantitative analysis of unemployment benefit extensions

Extensions of unemployment insurance (UI) benefits have been implemented in response to the Great Recession. This paper measures the effect of these extensions on the unemployment rate using a calibrated structural model featuring job search and consumption-saving decisions, skill depreciation, and UI eligibility. The ongoing UI benefit extensions are found to have raised the unemployment rate by 1.4 percentage points, which is about 30% of the observed increase since 2007. Moreover, the contribution of the UI benefit extensions to the elevated unemployment rate increased during 2009–2011; while the number of vacancies recovered, the successive extensions kept search intensity down.     

Employment and Welfare Effects of a Two-Tier Unemployment Compensation System

In Germany, as in many OECD countries, such as the United Kingdom, unemployment compensation consists of unemployment insurance and unemployment assistance. Unemployment assistance is provided subsequent to the expiration of entitlement to unemployment insurance and is lower. The effects of this two-tier unemployment compensation system are studied in a general equilibrium job search model with endogenous distributions of income, wealth, and employment which is calibrated with regard to the characteristics of the German economy. Our results are as follows: (i) employment is a decreasing function of both unemployment insurance and unemployment assistance. (ii) Aggregate savings are (not) a monotone decreasing function of unemployment assistance (unemployment insurance) payments. (iii) Optimal unemployment compensation payments are found to be a decreasing function over time.     

Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

In the modern welfare state a substantial part of an individual's tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, involuntary unemployment, endogenous retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance in a more efficient manner.     

Unemployment insurance and capital accumulation

In this paper, I examine a model economy with production, search, and unemployment insurance. The introduction of capital into the economy of Wang and Williamson (J. Monetary Econom. 49(7)(2001)1337) generates the result that optimal replacement ratios are always zero. The result arises from the decline in aggregate activity caused by unemployment insurance: both capital and labor inputs to production fall when benefits rise. Unlike most of the literature, I compute explicitly the cost of the transition path; agents are made better off by switching to a steady state with no unemployment insurance, but the welfare gain is approximately cut in half. Only the very poor and unemployed suffer welfare losses along the transition path. I then briefly investigate the implications of negative replacement ratios.     

Adverse selection and moral hazard: Quantitative implications for unemployment insurance

A model of optimal unemployment insurance with adverse selection and moral hazard is constructed. The model generates both qualitative and quantitative implications for the optimal provision of unemployment insurance. Qualitatively, for some agents, incentives in the optimal contract imply consumption increases over the duration of non-employment. Calibrating the model to a stylized version of the U.S. economy quantitatively illustrates these theoretical predictions. The optimal contract achieves a welfare gain of 1.94% relative to the current U.S. system, an additional 0.87% of gains relative to a planner who ignores adverse selection and focuses only on moral hazard.     

How important is intra-household risk sharing for savings and labor supply?

While it is recognized that the family is a risk-sharing institution, little is known about the quantitative effects of this source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who decide on consumption, savings and labor supplies. In a calibrated version of our model we find that intra-household risk sharing has its largest impact among wealth-poor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also study consumption losses upon an unemployment spell, precautionary savings and the crowding out effects of the public unemployment insurance program on the extent of risk sharing within the household.     

中国失业保险制度改革方向:纳入社会救助——基于历史背景与功能定位的分析

失业保险在建立和长期发展过程中,具有缓和劳资矛盾、天然双向平滑经济波动、提供失业保障和平滑个人收入的基本功能。但随着各国劳动保护及福利制度的发展,失业保险在政治和经济方面的功能减弱,且其失业收入损失补偿功能常常引发失业陷阱,于是各国进行了以促进积极就业为导向的改革。中国失业保险制度曾经为经济体制转型起到了“减震器”的作用。随着劳动保护和社会保障制度的发展和政府就业政策的完善,在二元就业结构、户籍制度、公共部门人力资源管理制度及政府承担就业促进任务的影响下,我国失业保险的政治、经济、失业人口收入补偿、就业促进功能未能有效发挥。在比较了若干改革方案后,本文认为,取消失业保险并将其功能并入社会救助体系是新时代背景下我国失业保险制度的最优改革路径。     

Borrowing constraints,the cost of precautionary saving and unemployment insurance

When it is costly for individuals to save or to borrow, unemployment insurance (UI) provides an alternative source of liquidity that smooths consumption over time and leads individuals to spend longer unemployed searching for a suitable job. We show in a tractable life-cycle model how the optimal unemployment replacement ratio and the fall in consumption on job loss depend on the cost of self-insurance and the cost of borrowing. This implies that the value of UI depends on age at job loss, consumption needs (such as the presence of children), discount rates, the return on saving, access to credit and the presence of other social insurance programmes. Optimal replacement rates vary substantially with plausible variation in these factors (from less than 20 percent to almost 60 percent).     

Social welfare effects of tax-benefit reform under endogenous participation and unemployment: an ordinal approach

This paper analyzes the social welfare effects of tax-benefit reforms in a framework integrating endogenous labor supply and unemployment. We adopt an ordinal approach to social welfare comparisons by searching for “socially desirable” reforms that would improve social welfare for an entire class of social welfare functions. In the model, there is a discrete distribution of individuals’ productivities and individuals are heterogeneous with respect to leisure preferences (or disability of work). Labor supply decisions are limited to the participation decision. Unemployment is modeled in a search and matching framework with individual wage bargaining. For the social welfare analysis, the model is calibrated for Switzerland. Starting from a situation with an unemployment benefit scheme, the introduction of in-work benefits is shown to be a “socially desirable” reform: it would be unanimously preferred to the current situation according to all social welfare functions based on the criteria of Pareto, anonymity, and the principle of transfers. This result holds for two different types of preference heterogeneity (leisure preferences or disability of work) and also for the case where job search effort cannot be monitored.     

Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions

We study the welfare costs of business cycles in a search and matching model with financial frictions. The model replicates the volatility on labor and financial markets. Business cycle costs are sizable. Indeed, the interactions between labor market and financial frictions magnify the impact of shocks via (i) a credit multiplier effect and (ii) an endogenous wage rigidity inherent to financial frictions. In addition, in a nonlinear framework, large welfare costs of fluctuations are explained by the high average unemployment and the low job finding rates with respect to their deterministic steady‐state values.     

State Dependent Unemployment Benefits

Optimal design of unemployment insurance is considered in a search setting where the state of nature (business cycle) affects the unemployment risk and thus the return to search. The incentive effects or distortions of individual job search arising due to the unemployment insurance scheme are crucial for optimal policies, so is the scope for risk diversification that depends critically on whether the balanced budget requirement applies to each state of nature or across states of nature. In the former case a basic budget effect tends to cause optimal benefits to be procyclical. If risk diversification across states of nature is possible, the fact that incentives are more distorted in good than bad states of nature tends to make both benefits and contribution rates countercyclical. It is shown that countercyclical benefits exacerbate employment fluctuations but increase average employment by aligning benefits more with states of nature where the incentive costs are small.     

Consumer-centered vs. job-centered health insurance

Most employees and their dependents in the United States have health insurance provided by the employer or labor-management health and welfare fund. In this system, employees and their families lose their health insurance when the breadwinner loses his or her job while, at the same time, a Medicaid beneficiary can lose Medicaid eligibility by getting a job, even a poorly paid one. Most health insurance pays the doctor on the basis of fee-for-service and the hospital on the basis of cost-reimbursement, rewarding both with more revenue for providing more and more costly services. The insured employee has little or no incentive to seek out a less costly provider. There are no rewards for economy in this system. It should be little wonder, then, that health care costs are out of control. There are alternative financing and delivery systems with built-in incentives to use resources economically, but, the author of this article asserts, their ability to compete and attract patients with their superior economic efficiency is blocked by many laws and government programs. The author believes that the most effective and acceptable way to get costs under control, and at the same time achieve universal coverage, would be through a system of fair economic competition. He discusses his Consumer Choice Health Plan proposal and describes how one of the main barriers to competition is today's system of job-linked health insurance.     

Saving and Portfolio Allocation Before and After Job Loss

We investigate the development of household labor income, financial wealth, and asset holdings over a 9‐year period around job loss, using unique administrative panel data from Norway. Consistent with predictions from theory, the data show additional saving and a shift toward safer assets in the years leading up to unemployment, and depletion of savings after job loss. In the years after job loss, the households' after‐tax labor income is reduced by about USD 12,500. Over the same time period, households deplete USD 3,000 of their financial assets, of which one third is accumulated prior to the job loss. This suggests that at least some households can foresee and prepare for the upcoming unemployment, which indicates that private savings can, to some extent, serve as a substitute for publicly provided unemployment insurance.     

Lost Generations: Long-Term Effects of the COVID-19 Crisis on Job Losers and Labour Market Entrants,and Options for Policy*

This paper discusses the potential long-run effects of large-scale unemployment during the COVID-19 crisis in the labour market on vulnerable job losers and labour market entrants in the United States. The paper begins by contrasting measures of the scale of job loss during the crisis. These measures are paired with estimates from past recessions indicating that the costs of job loss and unemployment can reduce workers’ earnings and raise their mortality for several decades. Focusing only on a subset of vulnerable job losers, the potential lifetime earnings losses from job loss related to the COVID-19 pandemic are predicted to be up to $2 trillion. Related losses in employment could imply a lasting reduction in the overall employment–population ratio. For these workers, losses in potential life years could be up to 24 million. Even at the low range, the resulting estimates are substantially larger than losses in potential life years from deaths directly due to COVID-19. New labour market entrants are at risk to suffer long-term losses in earnings and mortality as well. Based partly on experiences in other countries, the paper discusses potential reforms to short-time compensation programmes and unemployment insurance, which could help limit the short- and long-term harm from layoffs going forward.     

Choosing a System of Unemployment Income Support: Guidelines for Developing and Transition Countries

Mounting evidence suggests that excessive job protection reducesemployment and labor market flows, hinders technological innovations,pushes workers into the informal sector, and hurts vulnerablegroups by depriving them of job opportunities. Flexible labormarkets stimulate job creation, investment, and growth, butthey create job insecurity and displace some workers. How canthe costs of such insecurity and displacements be minimizedwhile ensuring that the labor market remains flexible? Eachof the main unemployment income support systems (unemploymentinsurance, unemployment assistance, unemployment insurance savingsaccounts, severance pay, and public works) has strengths andweaknesses. Country-specific conditions—chief among themlabor market and other institutions, the capacity to administereach type of system, and the size of the informal sector—determinewhich system is best suited to developing and transition countries.      

失业保险制度的就业促进效果评估——以内蒙古自治区为例

由于经济发展水平的限制和市场经济体制改革的层次性要求,我国的失业保险制度从建立之初就一直把充分发挥制度的"生活保障"功能作为追求的主要目标,而忽视了失业保险制度的预防失业和就业促进功能。本文以内蒙古自治区为例,运用层次分析法选取了一套较为科学的失业保险制度就业促进效果评估指标,旨在从制度层面分析内蒙古失业保险的就业促进效果。实证研究结果表明,应当建立城镇调查失业率制度、提高失业金替代率、增强就业培训与就业援助的效率、改变参保人群与失业人群错位现象、构建失业保险制度"自动调节机制"、积极探索权力下放和基金投资方式。     

中国失业保险支出水平的测度模型与实证分析

中国失业保险制度应该保持合理的支出水平，衡量标准主要看其是否为失业者提供了适度的收入保障以及是否对就业起到积极的促进作用。本文建立了测量失业保险支出水平的数理模型，根据国外典型国家的经验数据大体确定了失业保险支出水平的适度界限，并对中国现实的失业保险支出水平及其影响因素进行了分析，最后提出了完善失业保险制度以及合理提高失业保险支出水平的政策建议。     

Unemployment insurance and incentives

In this paper we present a partial economic equilibrium model of the labor market in which we maximize the workers' expected discounted utility level, while implying a zero expected profit for the firms. The model we use for the labor market takes into consideration transitions between the various states of employment and the time periods spent in each state. The probability distribution of these time periods may be arbitrary, not restricted to being exponential, as is the case for ordinary time-continuous Markov processes. The basic principles and difficulties arising from monitoring problems and moral hazard are discussed. In order to analyze unemployment insurance schemes that include incentives for workers to avoid unemployment, we depart from the simplest form of the principle of equivalence in insurance. Several different alternatives are discussed, all giving rise to partial insurance and thus incentives. We also analyze the effects that early retirement have on unemployment. Here, we include social security benefits in the economic model. Finally, we show that the optimal solutions entail quantity rationing.     

Unemployment and debt dynamics in a highly indebted small open economy

The paper analyzes the dynamic effects of a total factor productivity shock and an interest rate risk premium shock in a highly indebted open economy. In contrast to the standard open economy framework, search unemployment and wage bargaining are introduced. We find that a negative total factor productivity shock primarily has effects on the economy's production side and on welfare, but not on its stock of foreign debt and the country specific risk premium, and large part of the adjustment happens in the short-run. In contrast, a pure increase in the country specific risk premium causes substantial dynamics and a considerable reduction in foreign debt, allowing higher consumption in the long run and creating an intertemporal welfare gain, even though unemployment increases strongly in the short-run. A 50% haircut of foreign debt significantly reduces the initial response of the unemployment rate. In case of a temporary productivity shock, sticky wages imply smaller employment, but generate higher welfare than flexible wages.     

Medicare in the 21st century.

The authors provide an overview of the Medicare program in terms of how the current program operates, the current issues it faces that may shape possible options for reform, and the implications of these features and issues for employment-based health plans. Current issues include adoption of a premium support model, changes in the eligibility age for Medicare benefits, Medigap insurance, benefits covered and customer service.