Measuring the Equilibrium Effect of Unemployment Benefits Dispersion

Abstract

We analyze the impact of unemployment benefits and minimum wages using an equilibrium search model which allows for dispersion of benefits and productivity levels, job-to-job transitions, and structural and frictional unemployment. The estimation method uses readily available aggregate data on marginal distributions of unemployment durations as well as wages and benefit levels. Different causes of structural and frictional unemployment are investigated. We investigate the efficiency of the imposition of a single benefit level for all household types and the introduction of an Earned Income Tax Credit.

Keywords: Equilibrium search, wages, benefit levels, minimum wages, welfare

JEL Classification: J64, C41, E24, J31