Front-Loading the Payment of Unemployment Benefits

40 Pages Posted: 7 Dec 2014 Last revised: 17 Nov 2015

See all articles by Etienne Lalé

Etienne Lalé

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal; CIRANO; IZA

Date Written: February 1, 2015

Abstract

We study the effects of front-loading the payment of unemployment benefits in an equilibrium matching framework with precautionary savings. Front-loading the benefit system trades off fewer means to smooth consumption at long unemployment durations for improved insurance upon job loss. In the United States where jobless spells are typically frequent but short, we find that front-loading the benefit system yields significant welfare gains for new benefit recipients. The gains are lower in the aggregate, but are not completely offset by general equilibrium effects. Comparison with a search effort model shows that the welfare figures are not specific to matching frictions.

Keywords: Unemployment Insurance, Precautionary Savings, Labor-Market Frictions, Welfare Effect

JEL Classification: E21, I38, J63, J65

Suggested Citation

Lalé, Etienne, Front-Loading the Payment of Unemployment Benefits (February 1, 2015). Available at SSRN: https://ssrn.com/abstract=2534364 or http://dx.doi.org/10.2139/ssrn.2534364

Etienne Lalé (Contact Author)

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal ( email )

CP 8888 Succ Centre Ville
Montréal, Québec H3C3P8
Canada

CIRANO ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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