Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits

Universitat Pompeu Fabra Economics WP #211

47 Pages Posted: 23 Sep 1997

See all articles by Fabrizio Zilibotti

Fabrizio Zilibotti

Yale University; Centre for Economic Policy Research (CEPR)

Ramon Marimon

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Abstract

We develop an equilibrium search-matching model with risk-neutral agents and two-sided ex-ante heterogeneity. Unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job. The predictions of our simple model are consistent with the contrasting performance of the labor market in Europe and U.S. in terms of unemployment, productivity growth and wage inequality. To show this, we construct two fictitious economies with calibrated parameters which only differ by the degree of unemployment insurance and assume that they are hit by a common technological shock which enhances the importance of mismatch. This shock reduces the proportion of jobs which workers regard as acceptable in the economy with unemployment insurance (Europe). As a result, unemployment doubles in this economy. In the laissez-faire economy (U.S.), unemployment remains constant, but wage inequality increases more and productivity grows less due to larger mismatch. The model can be used to address a number of normative issues.

JEL Classification: J64, J65, D33

Suggested Citation

Zilibotti, Fabrizio and Marimon, Ramon, Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits. Universitat Pompeu Fabra Economics WP #211, Available at SSRN: https://ssrn.com/abstract=30648 or http://dx.doi.org/10.2139/ssrn.30648

Fabrizio Zilibotti (Contact Author)

Yale University ( email )

New Haven, CT 06520
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ramon Marimon

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
+34 93 542 2707 (Phone)
+34 93 542 1746 (Fax)

HOME PAGE: http://www.econ.upf.es/crei/people/marimon/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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