Part-Time Unemployment and Optimal Unemployment Insurance
33 Pages Posted: 19 Mar 2011
There are 2 versions of this paper
Part-Time Unemployment and Optimal Unemployment Insurance
Part-Time Unemployment and Optimal Unemployment Insurance
Date Written: March 14, 2011
Abstract
A significant fraction of the labor force consists of employed workers who are part-time unemployed (underemployed) in the sense that they are unable to work as much as they prefer. This paper develops a search and matching model to study the design of optimal unemployment insurance in an economy with unemployment as well as part-time unemployment. Part-time unemployment provides income insurance and serves as a stepping stone to full-time jobs. Unemployment benefits for part-timers increase the outflow from unemployment to part-time work but reduce the outflow from part-time work to fulltime employment. We examine the optimal structure of benefits for unemployed and underemployed workers. The results indicate non-negligible welfare gains associated with time limits for unemployment benefits as well as for part-time benefits. The welfare gains from optimal UI are larger when wages are fixed than when they are flexible.
Keywords: job search, part-time unemployment, unemployment insurance
JEL Classification: J640, J650
Suggested Citation: Suggested Citation
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