Why Unemployment Insurance Might Not Only Good for the Soul, it Might Also be Good for the Economy
Review for Social Economy, Vol. 62, pp. 517-541, 2004
Posted: 17 Jan 2010
Date Written: 2004
Contrary to the conventional view that unemployment insurance serves to directly increase the rate of unemployment as well as reducing an economy's competitiveness by increasing the market wage of labor, the argument presented in this paper is that this worldview critically depends on unrealistic behavioral assumptions. A more realistic modeling suggests that unemployment rates need not rise and competitiveness need not deteriorate with the introduction of or improvements in unemployment insurance, which can also induce increases in economic efficiency. These analytical predictions are consistent with the empirics of unemployment insurance. Unemployment insurance can therefore protect the unemployed without damaging the economy.
Keywords: Unemployment, Insurance, Rate of Unemployment, Competitiveness, Efficiency
JEL Classification: E24, G22, J65
Suggested Citation: Suggested Citation