Search Results
Working Paper
Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity
We document considerable scope of heterogeneity within the unemployed, especially when the unemployed are divided along eligibility and receipt of unemployment insurance (UI). We develop a heterogeneous-agent job-search model capable of matching the wealth and income differences that distinguish UI recipients from non-recipients. Labor market responses to UI changes are non-monotonic in wealth because the poorest individuals exhibit weak responses due to the high value they attribute to employment. Differential elasticities imply that the extent to which structural models account for the ...
Working Paper
Optimal Unemployment Insurance Requirements
In the US, unemployed workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement that stipulates the minimum qualifying work spell and a monetary requirement that determines a past minimum wage. This paper develops a heterogeneous agents model with history-dependent UI benefits in order to quantitatively obtain an optimal UI program design. We first conduct an empirical analysis using the discontinuity of UI rules at state borders and find that both the monetary and the tenure requirement reduce unemployment. The monetary requirement decreases the ...
Working Paper
Designing Unemployment Insurance for Developing Countries
The high incidence of informality in the labor markets of middle-income economies challenges the provision of unemployment protection. We show that, despite informational frictions, introducing an unemployment insurance savings account (UISA) system may provide substantial benefits. This system improves welfare by providing insurance to the unemployed and creating incentives to work in the formal sector. The optimal scheme generates a reduction in unemployment (from 4 to 3 percent), an increase in formality (from 68 to 72 percent), and a rise in total output (by 4 percent). Overall, ...
Working Paper
Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity
We document considerable scope of heterogeneity within the unemployed, especially when the unemployed are divided along eligibility and receipt of unemployment insurance (UI). We study the implications of this heterogeneity on UI’s insurance-incentive trade-off using a heterogeneous-agent job-search model capable of matching the wealth and income differences that distinguish UI recipients from non-recipients. Insurance benefits are larger for UI recipients who are predominantly wealth-poor. Meanwhile, incentive costs are nonmonotonic in wealth because the poorest individuals, who value ...
Expected U.S. Macroeconomic Performance during the Pandemic Adjustment Period
St. Louis Fed President James Bullard recommends declaring a “National Pandemic Adjustment Period” and discusses three broad goals of macroeconomic policy during this period.
Working Paper
How Should Unemployment Insurance Vary over the Business Cycle?
We study optimal unemployment insurance (UI) over the business cycle using a tractable heterogeneous agent job that features labor productivity driven business cycles and incomplete asset markets, and find that UI policy should be countercyclical. In this framework, besides providing consumption insurance upon job loss, generous UI payments allow individuals to maintain similar consumption levels even during recessions, when they would otherwise have had to accumulate savings by reducing consumption.Moreover, the presence of borrowing constrains disciplines the unemployed's job search ...
Working Paper
Optimal Unemployment Insurance and International Risk Sharing
We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country insurance through the unemployment insurance system can be achieved without affecting unemployment outcomes. The Ramsey-optimal policy however prescribes a more countercyclical replacement rate when international risk sharing concerns enter the unemployment insurance trade-off. We calibrate our model to ...
Working Paper
Optimal Unemployment Insurance Requirements
In the US, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to stay longer in unemployment because low-paying jobs are not covered by UI. Since it mitigates moral hazard, the optimal UI design ...
Working Paper
The Value of Unemployment Insurance: Liquidity vs. Insurance Value
This paper argues that the value of unemployment insurance (UI) can be decomposed into a liquidity component and an insurance component. While the liquidity component captures the value of relieving the cost to access liquidity during unemployment, the insurance component captures the value of protecting the worker against a potential permanent future income loss. We develop a novel sufficient statistics method to identify each component that requires only the labor supply responses to changes in the potential duration of UI and severance payment and implement it using Spanish administrative ...
COVID-19: Which Workers Face the Highest Unemployment Risk?
Some 46% of U.S. workers are employed in occupations at “high risk” of layoff due to COVID-19 measures. How much could it cost to offset their lost income?