Department of Economics and Business Economics

Business Cycle Dependent Unemployment Insurance

Research output: Working paperResearch

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  • Wp10 16

    Final published version, 304 KB, PDF document

  • School of Economics and Management
The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between "good" and "bad" states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages37
Publication statusPublished - 2010

    Research areas

  • Unemployment benefits, business cycle, insurance, incentives

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