Optimal Life Cycle Unemployment Insurance
Claudio Michelacci, Hernán Ruffo
American Economic Review · 2015 · Volume 105 · Issue 2
Abstract
We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)
Keywords
Intertemporal Household Choice, Life Cycle Models and Saving, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Fertility, Family Planning, Child Care, Children, Youth, Unemployment: Models, Duration, Incidence, and Job Search, Unemployment Insurance, Severance Pay, Plant Closings
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