Optimal Unemployment Benefit Policy and the Firm Productivity Distribution

38 Pages Posted: 23 Jun 2016

See all articles by Tomer Blumkin

Tomer Blumkin

Tel Aviv University - Eitan Berglas School of Economics; Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

Eran Yashiv

Tel Aviv University - Eitan Berglas School of Economics; CEP, LSE; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 2016

Abstract

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

Blumkin, Tomer and Danziger, Leif and Yashiv, Eran, Optimal Unemployment Benefit Policy and the Firm Productivity Distribution (May 2016). CESifo Working Paper Series No. 5931, Available at SSRN: https://ssrn.com/abstract=2799606

Tomer Blumkin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972 8 647 2268 (Phone)
+972 8 647 2941 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Leif Danziger (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
8-6472295 (Phone)
8-6472941 (Fax)

HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

IZA Institute of Labor Economics

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

Eran Yashiv

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9715 (Phone)
+972 3 640 9908 (Fax)

HOME PAGE: http://www.tau.ac.il/~yashiv/

CEP, LSE ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

IZA Institute of Labor Economics

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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