A Positive Theory of Geographic Mobility and Social Insurance

51 Pages Posted: 22 Nov 2002

See all articles by John Hassler

John Hassler

Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

José Vincente Rodríguez Mora

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Kjetil Storesletten

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Fabrizio Zilibotti

University of Zurich; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2002

Abstract

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer he/she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states, one "European" steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one "American" steady-state featuring low unemployment, high mobility and low unemployment insurance.

Keywords: Employment, Migration, Geographical Mobility, Political Equilibrium, Unemployment Insurance, Voting

JEL Classification: D72, E24, J24, J64, J65

Suggested Citation

Hassler, John and Rodríguez Mora, José Vincente and Storesletten, Kjetil and Zilibotti, Fabrizio, A Positive Theory of Geographic Mobility and Social Insurance (October 2002). CESifo Working Paper Series No. 791; UPF, Economics and Business Working Paper No. 604. Available at SSRN: https://ssrn.com/abstract=311584

John Hassler

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 816 2070 (Phone)
+46 816 1443 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

José Vincente Rodríguez Mora (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 1755 (Phone)
+34 93 542 1746 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Kjetil Storesletten

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 2284 4009 (Phone)
+47 2285 5035 (Fax)

HOME PAGE: http://folk.uio.no/kjstore/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Fabrizio Zilibotti

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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