Equilibrium Search with Time-Varying Unemployment Benefits

18 Pages Posted: 22 Jul 2005

See all articles by James Albrecht

James Albrecht

Georgetown University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Susan Vroman

Georgetown University; IZA Institute of Labor Economics

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Abstract

We show how time-varying unemployment benefits can generate equilibrium wage dispersion when identical firms post wages and homogeneous risk-averse workers search for jobs. We model a two-tier system similar to real-world UI programmes. The unemployed initially receive benefit b. Eventually, if a worker does not find a job, the benefit falls to zero. The duration of high benefits is treated as an exponential random variable, so the model is stationary. We characterise the equilibrium and derive the comparative statics effects of changes in the two benefit levels and the expected duration of the high-benefit state on equilibrium wages and unemployment.

Suggested Citation

Albrecht, James W. and Vroman, Susan B., Equilibrium Search with Time-Varying Unemployment Benefits. Economic Journal, Vol. 115, No. 505, pp. 631-648, July 2005. Available at SSRN: https://ssrn.com/abstract=760512

James W. Albrecht (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-6105 (Phone)
202-687-6102 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Susan B. Vroman

Georgetown University ( email )

Washington, DC 20057
United States
202-687-6024 (Phone)
202-687-6102 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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