Re-entitlement effects with duration-dependent unemployment insurance in a stochastic matching equilibrium

Melvyn Coles, Adrian Masters

Research output: Contribution to journalArticle

Abstract

In the context of a standard equilibrium matching framework, this paper considers how a duration-dependent unemployment insurance (UI) system affects the dynamics of unemployment and wages in an economy subject to stochastic job-destruction shocks. It establishes that re-entitlement effects induced by a finite duration UI program generate intertemporal transfers from firms that hire in future booms to firms that hire in current recessions. These transfers imply a net hiring subsidy in recessions which stabilizes unemployment levels over the cycle.

Original languageEnglish (US)
Pages (from-to)2879-2898
Number of pages20
JournalJournal of Economic Dynamics and Control
Volume31
Issue number9
DOIs
StatePublished - Sep 2007

Keywords

  • Duration-dependent UI
  • Matching frictions
  • Unemployment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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