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Federal Reserve Bank of Philadelphia
Working Papers
The elasticity of the unemployment rate with respect to benefits
Kai Christoffel
Keith Kuester
Abstract

If the Mortensen and Pissarides model with efficient bargaining is calibrated to replicate the fluctuations of unemployment over the business cycle, it implies a far too strong rise of the unemployment rate when unemployment benefits rise. This paper explores an alternative, right-to-manage bargaining scheme. This also generates the right degree of fluctuations of unemployment but at the same time implies a reasonable elasticity of unemployment with respect to benefits.


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Kai Christoffel & Keith Kuester, The elasticity of the unemployment rate with respect to benefits, Federal Reserve Bank of Philadelphia, Working Papers 08-15, 2008.
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Keywords: Unemployment
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