A Positive Theory of Geographic Mobility and Social Insurance

Hassler, John; Rodríguez Mora, José Vincente; Storesletten, Kjetil; Zilibotti, Fabrizio

doi:10.2139/ssrn.311584

Download This Paper

Open PDF in Browser

Add Paper to My Library

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

Centre for Economic Policy Research (CEPR); Yale University

There are 2 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: Suggested Citation

Hassler, John and Rodríguez Mora, José Vincente and Storesletten, Kjetil and Zilibotti, Fabrizio and Zilibotti, Fabrizio, A Positive Theory of Geographic Mobility and Social Insurance (October 2002). Available at SSRN: https://ssrn.com/abstract=311584 or http://dx.doi.org/10.2139/ssrn.311584