Social Insurance and Transition
40 Pages Posted: 4 Jul 2004 Last revised: 23 Jul 2010
Date Written: July 1993
We study the general equilibrium effects of social insurance on the transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty. We find that adding social insurance may slow transition. When there are incentive problems in this rematching process, the optimal social insurance scheme may involve forced layoffs and involuntary unemployment.
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