The Great Resignation and Optimal Unemployment Insurance

Abstract: How generous should social insurance be when quits account for a large share of transitions into non-employment? We address this question using a multi-sector directed search model extended to incorporate endogenous quits both to other jobs and to non-employment. Workers quit too often in the competitive equilibrium, and private markets co-ordinate on excessively high “efficiency” wages. Quantitatively, we find that unemployment insurance is optimally much less generous in an economy with quits than in one without. An extended Baily-Chetty formula is derived to illustrate the source of this difference.

Keywords: Directed search; Quits; Great Resignation; Unemployment insurance;

JEL Classification: E24; J65; J31; J64;

Access Documents

File(s): File format is application/pdf


Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 2023-10-16

Number: 652