Talent Discovery, Layoff Risk and Unemployment Insurance

42 Pages Posted: 19 Nov 2018

See all articles by Marco Pagano

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Luca Picariello

University of Naples Federico II, Center for Studies in Economics and Finance (CSEF)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2, 2018

Abstract

In talent-intensive jobs, workers’ quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. Firms cannot insure workers against this risk if they compete fiercely for talent. In this case, the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries, consistently with international evidence. Unemployment insurance dominates legal restrictions on firms’ dismissals, which penalize more talent-sensitive firms and thus depress expected productivity. Finally, unemployment insurance fosters education, by encouraging investment in risky human capital that enhances talent discovery.

Keywords: talent, learning, layoff risk, unemployment insurance

JEL Classification: D61, D83, I20, J24, J63, J65

Suggested Citation

Pagano, Marco and Picariello, Luca, Talent Discovery, Layoff Risk and Unemployment Insurance (October 2, 2018). CFS Working Paper, No. 603, 2018. Available at SSRN: https://ssrn.com/abstract=3274341 or http://dx.doi.org/10.2139/ssrn.3274341

Marco Pagano (Contact Author)

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Luca Picariello

University of Naples Federico II, Center for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Naples, Naples 80126
Italy

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