Unemployment Insurance and the Business Cycle

32 Pages Posted: 13 Jul 2003

See all articles by Laura K. Brown

Laura K. Brown

University of Manitoba - Department of Economics

Christopher Ferrall

Queen's University - Department of Economics

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Abstract

An equilibrium model is developed to study the interaction of the business cycle, unemployment insurance (UI), and the labor market for young men in Canada. The model combines optimal job offer, layoff, and recall decisions within a numerically solved and restricted Bayesian-Nash equilibrium. We consider the long-run implications of changes made to unemployment insurance in Canada during the 1990s. The changes lead to equilibrium increases in average rates of unemployment, layoffs, and recalls. Eliminating UI lowers the equilibrium unemployment rate and average observed earnings. UI policy affects the timing of cycles of endogenous outcomes relative to the productivity cycle.

Suggested Citation

Brown, Laura K. and Ferrall, Christopher, Unemployment Insurance and the Business Cycle. Available at SSRN: https://ssrn.com/abstract=422982

Laura K. Brown (Contact Author)

University of Manitoba - Department of Economics ( email )

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Christopher Ferrall

Queen's University - Department of Economics ( email )

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Canada K7L 3N6
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