Productivity Gains from Unemployment Insurance

38 Pages Posted: 26 Jul 2000

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert Shimer

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1999

Abstract

This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the standard moral hazard effects of unemployment insurance. Our model economy captures the behavior of the U.S. labor market for high school graduates quite well. When unemployment insurance becomes more generous starting from the current U.S. levels, there is an increase in unemployment similar in magnitude to the micro-estimates, but because the composition of jobs also changes, total output and welfare increase as well.

Suggested Citation

Acemoglu, Daron and Shimer, Robert J., Productivity Gains from Unemployment Insurance (November 1999). Available at SSRN: https://ssrn.com/abstract=237468 or http://dx.doi.org/10.2139/ssrn.237468

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