Optimal Umemployment Insurance Design: Time Limits, Monitoring, or Workfare?
Department of Economics; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)
Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)
CESifo Working Paper Series No. 1019
This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity, which takes the form of differences in preferences for leisure. All the instruments are ways of limiting the duration of UI benefit receipt and the model can be used to compare them in a coherent fashion. The analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems.
Number of Pages in PDF File: 31
Keywords: unemployment insurance, search, monitoring, sanctions, workfare
JEL Classification: J64, J65, J68working papers series
Date posted: August 23, 2003
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