Optimal Unemployment Benefit Policy and the Firm Productivity Distribution
38 Pages Posted: 23 Jun 2016
Date Written: May 2016
This paper provides a novel justification for a declining time profile of unemployment benefits that does not rely on moral hazard or consumption-smoothing considerations. We consider a simple search environment with homogeneous workers and low- and high-productivity firms. By introducing a declining time profile of benefits, the government can affect the equilibrium wage profile in a manner that enhances the sorting of workers across low- and high-productivity firms. We demonstrate that optimal government policy depends on the dispersion and skewness of the firms’ productivity distribution.
Keywords: unemployment benefit policy, declining unemployment benefits, productivity distribution, skewness, dispersion
JEL Classification: J640, J650
Suggested Citation: Suggested Citation