Knowledge of Future Job Loss and Implications for Unemployment Insurance
American Economic Review · 2017 · Volume 107 · Issue 7
Abstract
This paper studies the implications of individuals' knowledge of future job loss for the existence of an unemployment insurance (UI) market. Learning about job loss leads to consumption decreases and spousal labor supply increases. This suggests existing willingness to pay estimates for UI understate its value. But it yields new estimation methodologies that account for and exploit responses to learning about future job loss. Although the new willingness to pay estimates exceed previous estimates, I estimate much larger frictions imposed by private information. This suggests privately traded UI policies would be too adversely selected to be profitable, at any price.
Keywords
Asymmetric and Private Information, Mechanism Design, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, Insurance, Insurance Companies, Actuarial Studies, Time Allocation and Labor Supply, Unemployment: Models, Duration, Incidence, and Job Search, Unemployment Insurance, Severance Pay, Plant Closings
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