A Positive Theory of Geographic Mobility and Social Insurance

Hassler, John; Storesletten, Kjetil; Zilibotti, Fabrizio; Rodríguez Mora, José V.

A Positive Theory of Geographic Mobility and Social Insurance

41 Pages Posted: 9 Feb 2005

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

Kjetil Storesletten

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

Fabrizio Zilibotti

Yale University; Centre for Economic Policy Research (CEPR)

José V. Rodríguez Mora

Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Abstract

This article presents a tractable dynamic general equilibrium model explaining cross-country data on geographical mobility, unemployment, and labor market institutions. Rational forward-looking agents vote on unemployment insurance (UI). Agents with higher moving costs (larger attachment to their location) prefer more generous UI. Attachment is assumed to increase with the duration of residence. UI mitigates incentives for moving and increases, therefore, the fraction of attached agents and the political support for UI. This self-reinforcing mechanism can yield two steady-states: one "European" and one "American." The former (latter) features high (low) unemployment, low (high) geographical mobility, and high (low) UI.

Suggested Citation: Suggested Citation

Hassler, John and Storesletten, Kjetil and Zilibotti, Fabrizio and Rodríguez Mora, José V., A Positive Theory of Geographic Mobility and Social Insurance. Available at SSRN: https://ssrn.com/abstract=660661