crisis or opportunity economic degrowth for social equity and ecological sustainability introduction to this special issue abstract this article reviews the burgeoning emerging literature on sustainable degrowth this is defined as an equitable downscaling of production and consumption that increases human well being and enhances ecological conditions at the local and global level in the short and long term the paradigmatic propositions of degrowth are that economic growth is not sustainable and that human progress without economic growth is possible degrowth proponents come from diverse origins some are critics of market globalization new technologies or the imposition of western models of development in the rest of the world all criticize gdp accounting though they propose often different social and ecological indicators degrowth theorists and practitioners support an extension of human relations instead of market relations demand a deepening of democracy defend ecosystems and propose a more equal distribution of wealth we distinguish between depression i e unplanned degrowth within a growth regime and sustainable degrowth a voluntary smooth and equitable transition to a regime of lower production and consumption the question we ask is how positive would degrowth be if instead of being imposed by an economic crisis it would actually be a democratic collective decision a project with the ambition of getting closer to ecological sustainability and socio environmental justice worldwide most articles in this issue were originally presented at the april 2008 conference in paris on economic degrowth for ecological sustainability and social equity this conference brought the word degrowth and the concepts around it into an international academic setting articles of this special issue are summarized in this introductory article hueting d alessandro and colleagues van den bergh kerschner spangenberg and alcott discuss whether current growth patterns are un sustainable and offer different perspectives on what degrowth might mean and whether and under what conditions it might be desirable matthey and hamilton focus on social dynamics and the obstacles and opportunities for voluntary social action towards degrowth lietaert and cattaneo with gavalda offer a down to earth empirical discussion of two practical living experiments cohousing and squats highlighting the obstacles for scaling up such alternatives finally van griethuysen explains why growth is an imperative in modern market economies raising also the question whether degrowth is possible without radical institutional changes

consumption smoothing and income redistribution abstract we show theoretically that income redistribution benefits borrowing constrained individuals more than is implied by standard relative income and uninsurable risk considerations empirically we find in international opinion survey data that younger and lower income individuals express stronger support for government redistribution in countries where consumer credit is less easily available this evidence supports our theoretical perspective if such individuals are more strongly affected by tighter credit supply in that expectations of higher incomes in the future increase their propensity to borrow

europe vs america institutional hysteresis in a simple normative model we show how the differences in us and european institutions can arise in a normative model the paper focuses on the labor market and the government s decision to set unemployment benefits in response to an unemployment shock the government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse incentive effects whereby benefits increase unemployment it is found that when an adverse shock occurs benefits should be increased most when the adverse incentive effects of benefits are largest adjustment costs of changing benefits introduce hysteresis and can help explain why post oil shock benefits remained high in europe but not in the us desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple requires the third derivative of the utility function to be non negative and self correcting empirical evidence concerning the role of corporatism is discussed

what have we learned from empirical studies of unemployment and turnover unemployment reminds economists that we have a lot to be modest about twenty years ago robert hall 1972 asked why is the unemployment rate so high at full employment at the time hall wrote male unemployment in the united states had risen to 3 5 percent and it would peak at 4 4 percent in the recession of 1971 since then every cyclical low of unemployment has exceeded the one before it the end of the 1980 s expansion reduced unemployment to about 4 5 percent and unemployment peaked at 7 4 percent of the labor force in the recession that just ended the natural rate of unemployment has evidently risen through time which led lawrence summers 1986 to place a modifier in hall s question why is the unemployment rate so very high in what follows i pose three questions about the causes and consequences of rising joblessness first who are the unemployed i will show that unemployment and nonparticipation are heavily concentrated among the least skilled and more importantly that virtually all of the long term increase in joblessness occurs among low wage men unemployment and nonparticipation among highly skilled men are unchanged since the 1960 s second what factors have caused jobless time to rise there are many theories including changes in labor force demographics social programs that discourage employment and changes in the amount of frictional unemployment caused by sectoral shifts none of these is consistent with the evidence which points instead to a secular decline in the demand for lessskilled workers the data also cast doubt on nonmarket clearing models of rising unemployment wages are demonstrably flexible in the long run and they have fallen dramatically among the unskilled whose jobless rates have risen third what happens to the unemployed in contrast to the view that unemployment spells cause transitory reductions in income recent evidence indicates that job losses have substantial and permanent effects on earning power many of the unskilled who are unemployed or out of the labor force appear to have been high wage workers whose specialized skills have become obsolete

has work sharing worked in germany industry by industry basis in an attempt to raise employment whether this work sharing works is theoretically ambiguous i exploit the cross industry variation in standard hours reductions to examine their impact on actual hours worked wages and employment analysis of industry level data suggests that work sharing may have reduced employment in the period 1984 1994 using individual data from the german socio economic panel i substantiate the union claim of full wage compensation the hourly wage rose enough to offset the decline in actual hours worked

unemployment insurance and the rate of re employment of displaced workers the rate of transition from unemployment to re employment for a sample of displaced workers is estimated using a semiparametric specification which allows the effects of unemployment insurance benefits to vary over time three results which would be missed by more restrictive specifications demonstrate the value of this approach 1 the effects of ui benefits decline and eventually disappear as the date of expiration approaches 2 expiration of ui benefits are an inadequate explanation of the spikes commonly observed in nonparametric sample hazard rates for re employment 3 ui benefits do not significantly affect the rate at which a displaced worker becomes re employed in his or her previous industry but reduce the rate for transitions to other industries copyright 1991 by mit press

equilibrium heterogeneous agent models as measurement tools some monte carlo evidence abstract this paper discusses a series of monte carlo experiments designed to evaluate the empirical properties of heterogeneous agent macroeconomic models in the presence of sampling variability the calibration procedure leads to the welfare analysis being conducted with the wrong parameters the ability of the calibrated model to correctly predict the long run welfare changes induced by a set of policy experiments is assessed the results show that for the policy reforms with sizable welfare effects i e more than 0 2 the model always predicts the right sign of the welfare effects however the welfare effects can be evaluated with the wrong sign when they are small and when the sample size is fairly limited quantitatively the maximum errors made in evaluating a policy change are very small for some reforms in the order of 0 02 percentage points but bigger for others in the order of 0 6 percentage points finally having access to better data in terms of larger samples does lead to substantial increases in the precision of the welfare effects estimates though the rate of convergence can be slow

designing optimal disability insurance a case for asset testing we analyze an implementation of an optimal disability insurance system as a competitive equilibrium with taxes an optimum is implemented by an asset tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum the logic behind this result is that an agent who plans to falsely claim disability a finds doing so unattractive if he does not adjust his savings and b cannot collect disability insurance if he does adjust his savings in the desired direction upward for a calibrated economy we find that welfare gains from asset testing are significant

the macro effects of unemployment benefit extensions a measurement error approach by how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment answering this question is challenging because u s law extends benefits for states experiencing high unemployment we use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real time data used to determine benefit extensions using only the variation coming from measurement error we find that benefit extensions have a limited influence on state level macroeconomic outcomes we apply our estimates to the increase in the duration of benefits during the great recession and find that they increased the unemployment rate by at most 0 3 percentage point

job search and asset accumulation under borrowing constraints this article examines the relationship between wealth accumulation and job search dynamics it proposes a model in which risk averse individuals search for jobs save and borrow to smooth their consumption one motivation for accumulating wealth is to finance voluntary quits in order to search for better jobs using data on men from the national longitudinal survey 1979 cohort i estimate the individual s dynamic decision problem the results show that borrowing constraints are tight and reinforce the influence of wealth on job acceptance decisions namely that more initial wealth and access to larger amounts of credit increase wages and unemployment duration

societal metabolism working hours and degrowth a comment on sorman and giampietro can we choose whether to degrow sorman and giampetro in this special issue argue that degrowth can only be forced upon us it will never be the outcome of voluntary or collective choice in this commentary i argue instead that although sooner or later we will have to degrow because of bio physical limitations we still have a choice of how to do it constructing a positive vision of degrowth as an inspirational political project that mobilizes citizens increases the likelihood of a prosperous way down i agree with the authors that in an energy scarce world we will have to work more to maintain the same level of material affluence but i contend that under conceivable conditions we might be equally happy with less work less energy and less material affluence a multi scalar analysis of societal metabolism is essential for the evaluation of degrowth policies and trajectories however unlike what sorman and giampietro suggest there is nothing in existing metabolic analyses that suggests that a prosperous degrowth trajectory is a priori impossible

unemployment insurance and unemployment accounts the best of both worlds unemployment accounts are mandatory individual savings accounts that can be used only during unemployment or retirement unlike unemployment insurance unemployment accounts solve the moral hazard problem but provide no public insurance to workers i study a hybrid system that borrows from concepts of both unemployment insurance and unemployment accounts in which workers are mandated to save when employed and can withdraw from the account when unemployed once the account is exhausted the unemployed worker receives unemployment benefits this hybrid policy provides insurance to workers more efficiently than an unemployment insurance system because it provides government benefits selectively as a consequence young workers can reduce their precautionary savings and better smooth their consumption over the life cycle calibrating the model to the us economy i find that relative to an optimal unemployment insurance system the optimal hybrid policy leads to a welfare gain of 2 4 measured as consumption equivalent variation jel classification e24 e61 j64 j65

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

environment versus growth a criticism of degrowth and a plea for a growth in recent debates on environmental problems and policies the strategy of degrowth has appeared as an alternative to the paradigm of economic growth this new notion is critically evaluated by considering five common interpretations of it one conclusion is that these multiple interpretations make it an ambiguous and rather confusing concept another is that degrowth may not be an effective let alone an efficient strategy to reduce environmental pressure it is subsequently argued that a growth i e being indifferent about growth is a more logical social aim to substitute for the current goal of economic growth given that gdp per capita is a very imperfect indicator of social welfare in addition focusing ex ante on public policy is considered to be a strategy which ultimately is more likely to obtain the necessary democratic political support than an ex ante explicit degrowth strategy in line with this a policy package is proposed which consists of six elements some of which relate to concerns raised by degrowth supporters

productivity gains from unemployment insurance this paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs and by encouraging rms to create those jobs we use a quantitative model to investigate whether this eect is comparable in magnitude to the standard moral hazard eects of unemployment insurance our model economy captures the behavior of the u s labor market for high school graduates quite well with unemployment insurance more generous than the current u s level unemployment would increase by a magnitude similar to the micro estimates but because the composition of jobs also changes total output and welfare would increase as well

the welfare costs of worker displacement abstract recent work has documented the large persistent earnings losses associated with the displacement of high tenure workers in this paper we assess the welfare costs of this risk assuming that workers do not have access to insurance markets we find that the cost is substantial on the same order of magnitude as the cost associated with unemployment risk we also argue that long duration unemployment insurance is likely to exacerbate this cost and that government financed severance payments are a far more effective way of dealing with the displacement risk

local currencies for purposive degrowth a quality check of some proposals for changing money as usual this article provides a quality check of the degrowth movement s proposal of local currencies as tools for advancing socially equitable and ecologically sustainable degrowth the article draws comprehensively upon mainly english language academic research about four widespread local currency types lets time banks hour currencies and convertible local currencies clcs to assess their performance with respect to four degrowth related criteria community building advancement of alternative values in economic exchange facilitation of alternative livelihoods and eco localization lets have been found to support alternative livelihoods under quite uncommon conditions and contribute indirectly to eco localization by moderately facilitating informal resale repair and sharing of commercially produced goods although their burdensome management and confinement to small memberships limit their usefulness time banks help expand social networks and are best at reaching the socially excluded however they are confined to unskilled personal services and dependent on grant funding hour currencies do not stand out with regard to any criteria but may have a minor capacity to promote local purchasing clcs are best at attracting local businesses but no significant evidence of their said capacity to localize supply chains has surfaced as yet and their business friendly design works to the detriment of other criteria in sum existing research provides a very weak basis for advocating local currencies as tools for purposive degrowth local currencies are here categorized as two utopian socialist approaches the behind society s back variety of lets and hour currencies and the appeal to elites variety of time banks and clcs marx and engels s critiques of these approaches remain valid successful monetary systems require resources that are not available behind society s back notably the power to levy taxes and designate by which means they can be paid local currencies that appeal for elite support without mass popular backing have shaken off most radical connotations and are vulnerable to changing policy agendas given the present historical conjuncture of popular outrage against the banking sector this paper argues that the degrowth movement would improve its chances of contributing to purposive degrowth by prioritizing government centred ecological reform of the monetary system over local currencies

household search and the aggregate labor market we develop a theoretical model with labour market frictions incomplete financial markets and with households which have two members households face unemployment risks but their members adjust their labour supplies to insure against unemployment we use the model to explain the cyclical properties of aggregate employment and participation as in the u s data the model predicts that the participation rate the fraction of individuals that want jobs is not strongly correlated with aggregate economic activity this property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions when we assume bachelor households or households with infinitely many members complete markets in the two member household model and in the data primary earners are always in the labour force secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate their behaviour insures the household against unemployment risks

the interest rate pass through in the euro area during the sovereign debt crisis abstract we investigate the pass through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis in comparison to the pre crisis period we make the following contributions first we use a factor augmented vector autoregression which allows us to assess the responses of a large number of country specific interest rates and spreads second we analyze the effects of monetary policy on the components of the interest rate pass through which reflect banks funding risk including sovereign risk and markups charged by banks over funding costs third we not only consider conventional but also unconventional monetary policy we find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis the composition of the pass through has changed specifically expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer term bank funding risk in peripheral and core countries during the crisis but has been unable to lower banks markups this was not or not as much the case prior to the crisis unconventional monetary policy helped decreasing lending rates mainly due to large shocks rather than a strong propagation

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

an equilibrium analysis of optimal unemployment insurance and taxation a two person two period general equilibrium model with uncertainty about second period labor productivity is developed the model is used to consider potential welfare pareto gains from both a stylized unemployment insurance system and from a negative income tax system welfare gains are possible if individuals are sufficiently homogeneous when both programs are operated simultaneously complete insurance is always feasible but is optimal only if the labor supply curve is negatively sloped

unsecured debt with public insurance from bad to worse abstract in u s data income interruptions the receipt of public insurance and the incidence of personal bankruptcy are all closely related the central contribution of this paper is to evaluate bankruptcy protection and public insurance in a unified setting where each program alters incentives in the other our analysis delivers two striking conclusions first we find that u s personal bankruptcy law is an important barrier that prevents the public insurance system from improving welfare second contrary to popular belief we find that increases in the generosity of public insurance will lead to more not less bankruptcy

the economics of degrowth economic degrowth is ecologically desirable and possibly inevitable but under what conditions can it become socially sustainable how can we have full employment and economic stability without growth what will happen to public spending and to public debt how would production be organised in a degrowing economy and under what plausible socio political conditions could such grand changes happen standard economic theories and models ignore these questions for them economic growth is an axiomatic necessity this article reviews recent contributions in the economics of degrowth and identifies research avenues for ecological economists

more on marriage fertility and the distribution of income according to pareto 1896 the distribution of income depends on the nature of the people comprising a society on the organization of the latter and also in part on chance in the model developed here the nature of the people is captured by attitudes toward marriage divorce fertility and children singles search for mates in a marriage market married agents bargain about work and the quantity and quality of children they can divorce social policies such as child support requirements reflect the organization of the society finally chance is modeled by randomness in income marriage opportunities and marital bliss

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

in defence of degrowth abstract this article defends the proposal of sustainable degrowth a starting premise is that resource and co2 limits render further growth of the economy unsustainable if degrowth is inevitable the question is how it can become socially sustainable i e a prosperous and stable rather than a catastrophic descent pricing mechanisms alone are unlikely to secure smooth adaptation a full ensemble of environmental and redistributive policies is required including among others policies for a basic income reduction of working hours environmental and consumption taxes and controls on advertising policies like these that threaten to harm the economy are less and less likely to be implemented within existing market economies whose basic institutions financial property political and redistributive depend on and mandate continuous economic growth an intertwined cultural and political change is needed that will embrace degrowth as a positive social development and reform those institutions that make growth an imperative sustainable degrowth is therefore not just a structuring concept it is a radical political project that offers a new story and a rallying slogan for a social coalition built around the aspiration to construct a society that lives better with less

unemployment insurance take up rates in an equilibrium search model abstract from 1989 to 2012 on average 23 of those eligible for unemployment insurance ui benefits in the us did not collect them to understand the implications of these unclaimed benefits we develop a directed search model with an endogenous ui take up rate in equilibrium ui collectors have longer unemployment durations relative to non collectors the difference results from two forces a consumption effect and a private information effect as ui collection histories are unobservable we characterize both effects analytically and quantitatively with an endogenous take up rate the unemployment rate and average duration of unemployment respond significantly slower to changes in the ui benefit level relative to the standard model with a 100 take up rate the private information effect on non collector job finding rates plays an important role in this result

a study of degrowth paths based on the von neumann equilibrium model abstract this paper revisits the von neumann equilibrium model from a degrowth perspective degrowth can be either planned or autonomous based on voluntary simplicity vs characterized by voluntary constraints on the private consumptions any share of the working population is allowed to limit their private consumptions or ecological footprint degrowth means a lower economic growth rate as well as reductions in the usage of materials and fossil energy however when the economy cannot fit within the biophysical boundary despite such reductions degrowth can also mean a deliberate transition towards lesser and cleaner production of a smaller number of goods taking ecological boundaries into consideration may thus switch the direction of an economy from growth to degrowth degrowth is consistent with economic equilibrium in the dynamic input output model degrowth equilibrium results when a critical mass of the population prioritizes diminishing the ecological deficit over increasing the output levels green growth can take place during degrowth while the economy gradually shrinks the interest profit rate in macroeconomic equilibrium is negative due to the conservation target excessive consumption has negative value to vs type agents degrowing private consumptions implies less work more leisure and better quality of the environment improving social welfare degrowth can be advanced by adopting a more cooperative production system or by imposing high ecological taxes the equilibrium model yields an argument for basic income as a means of supporting welfare during degrowth and of compensating for unpaid work the open economy version of the model shows reduced scope for intra industry trade between similar countries

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

unemployment insurance and the business cycle an equilibrium model is developed to study the interaction of the business cycle unemployment insurance and the labor market for young men in canada the model combines optimal job oer layo 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 layos and recalls eliminating ui lowers the equilibrium unemployment

benefit duration unemployment duration and job match quality a regression discontinuity approach summary we use a sharp discontinuity in the maximum duration of benefit entitlement to identify the effect of extended benefit duration on unemployment duration and post unemployment outcomes employment stability and re employment wages we address dynamic selection which may arise even under an initially random assignment to treatment estimating a bivariate discrete time hazard model jointly with a wage equation and correlated unobservables owing to the non stationarity of job search behavior we find heterogeneous effects of extended benefit duration on the re employment hazard and on job match quality our results suggest that the unemployed who find a job close to and after benefit exhaustion experience less stable employment patterns and receive lower re employment wages compared to their counterparts who receive extended benefits and exit unemployment in the same period these results are found to be significant for men but not for women copyright 2012 john wiley sons ltd

degrowth taking stock and reviewing an emerging academic paradigm degrowth has evolved within a decade from an activist movement into a multi disciplinary academic paradigm however an overview taking stock of the peer refereed degrowth literature is yet missing here we review 91 articles that were published between 2006 and 2015 we find that the academic degrowth discourse occupies a small but expanding niche at the intersection of social and applied environmental sciences the discourse is shaped by authors from high income mainly mediterranean countries until 2012 articles largely constitute conceptual essays endorsed by normative claims more recently degrowth has branched out into modelling empirical assessments and the study of concrete implementations authors tend to agree in that economic growth cannot be sustained ad infinitum on a resource constraint planet and that degrowth requires far reaching societal change whether degrowth should be considered as a collectively consented choice or an environmentally imposed inevitability constitutes a major debate among degrowth thinkers we argue that the academic discourse could benefit from rigid hypotheses testing through input output modelling material flow analysis life cycle assessments or social surveys by analyzing the potentials for non market value creation and identifying concrete well being benefits the degrowth discourse could receive wider public support and contribute to a paradigmatic change in the social sciences

optimal unemployment insurance in search equilibrium should unemployment benefits be paid indefinitely at a fixed rate or should the rate decline or increase over a worker s unemployment spell we examine these issues using an equilibrium model of search unemployment the model features worker firm bargaining over wages free entry of new jobs and endogenous search effort among the unemployed the main result is that an optimal insurance program implies a declining benefit sequence over the spell of unemployment numerical calibrations of the model suggest that there may be nontrivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system

moral hazard vs liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives

on the quantitative importance of market completeness abstract this paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk the findings are that the equilibrium behavior of aggregate variables is very similar across all market structures there are only minor differences the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies due partly to the higher volatility of consumption of older people it was also found that the risk premia in complete markets economies is basically zero therefore we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk

reservation wages and unemployment insurance this paper argues that a risk averse worker s after tax reservation wage encodes all the relevant information about her welfare this insight leads to a novel test for the optimality of unemployment insurance based on the responsiveness of reservation wages to unemployment benefits some existing estimates imply significant gains to raising the current level of unemployment benefits in the united states but highlight the need for more research on the determinants of reservation wages our approach complements those based on baily s 1978 test

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

integration of unemployment insurance with retirement insurance abstract this paper analyzes a social insurance system that integrates unemployment insurance with a pension program allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment this paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration we show that when the duration of unemployment is very short compared to the period of employment or retirement the optimal system involves exclusive reliance on pension funded self insurance this system imposes a negligible risk burden for workers while avoiding attenuating search incentives we also argue that joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated with each other

unemployment insurance in the presence of an informal sector we study the effect of ui bene ts in a typical developing country where the informal sector is sizeable and persistent in a partial equilibrium environment ruling out the macroeconomic consequences of ui benefits we characterize the stationary equilibrium of an economy where policyholders may be employed in the formal sector short run unemployed receiving ui benefits or long run unemployed without ui benefits we perform comparative static exercises to understand how ui benefits affect unemployed workers effort to secure a formal job and their labor supply in the informal sector our model reveals that an increase in ui benefits generates two opposing effects for the short run unemployed first since search efforts cannot be monitored it generates moral hazard behaviours that lower effort second it generates an income effect as it reduces the marginal cost of searching for a formal job and increases effort even though in general it is ambiguous which effect dominates we show that for short durations ui benefits increase unemployed worker s effort to secure a formal sector job and decreases informal sector work

erratum moral hazard versus liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives c 2008 by the university of chicago all rights reserved this abstract was borrowed from another version of this item

moral hazard optimal unemployment insurance and experience rating abstract this paper is concerned with evaluating alternative unemployment insurance ui schemes in a dynamic economy with moral hazard we consider changes in the size and duration of ui benefits and the effects of experience rating and use a dynamic contracting approach to determine a benchmark optimal allocation radical changes in the current ui system increase welfare but not by much a move to full experience rating has distributional effects but the aggregate effects are negligible

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

endogenous market incompleteness with investment risks abstract this paper studies a general equilibrium economy in which agents have the ability to invest in a risky technology the investment risk cannot be fully insured with optimal contracts because shocks are private information we show that the presence of investment risks lead to under accumulation of capital relative to an economy where idiosyncratic shocks can be fully insured we also show that the availability of state contingent optimal contracts compared to simple debt contracts brings the aggregate stock of capital close to the complete markets level institutional reforms that make possible the use of these contracts have important welfare consequences

taxation and redistribution of residual income inequality this paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market we study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms the optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax the positive unemployment benefit serves the purpose of lowering the search risk faced by workers the increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society

distance to retirement and older workers employment the case for delaying the retirement age this paper presents empirical evidence and a theoretical foundation in favor of the view that the retirement age decision affects older workers employment prior to retirement to the extent that there are search frictions on the labor market the return on jobs is determined by their expected duration the time to retirement is then key to understanding older workers employment countries with a retirement age of 60 are indeed characterized by lower employment rates for workers aged 55 59 based on the french labor force survey we show that the likelihood of employment is significantly affected by the distance to retirement in addition to age and other relevant variables we then extend mccall s job search model by explicitly integrating life cycle features with the retirement decision using simulations we show that the distance effect in interaction with the generosity of unemployment benefits and the depressed demand for older workers explains the low rate of employment just before the eligibility age for the social security pension finally we show that implementing actuarially fair schemes not only extends the retirement age but also encourages a more intensive job search by older unemployed workers jel j22 j26 h55

de growth and welfare in an equilibrium model with heterogeneous consumers this paper studies equilibrium growth and voluntary degrowth allowing for heterogeneous and time varying preferences the approach is based on applying a dynamic equilibrium model with externalities in production consumption and leisure preference heterogeneity regarding status competition is modeled by asymmetric consumption externality parameters whereas heterogeneity regarding voluntary simplicity is incorporated by allowing for agent specific restrictions on maximum consumption equilibrium is studied in terms of a balanced growth path bgp numerical examples suggest that degrowth triggered by voluntary simplicity by a subset of consumers less affected by status competition has a positive effect on the aggregate welfare under externalities in consumption and leisure a reduction in status competition increases the aggregate welfare and reduces the equilibrium growth rate simulations suggest that a time varying equilibrium in the heterogeneous preference model with two consumer classes is well approximated by a constant bgp

quantifying the laffer curve on the continued activity tax in a dynastic framework it is argued that the tax on continued activity should be removed by implementing actuarially fair schemes however these schemes cannot fund the expected social security ss deficit this article proposes to give individuals a fraction of the actuarially fair incentives in the case of postponed retirement ss faces a trade off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit this trade off is captured by a laffer curve finally when the ss system aims to maximize welfare the optimal tax on postponed retirement is still strictly positive erratum vol 49 issue 4 1539

does decreasing working time reduce environmental pressures new evidence based on dynamic panel approach abstract there is a growing interest in the correlation between working time and environmental pressures but prior empirical studies were mostly focused on static methods within limited country groups to fill the gap this study aims to stimulate the discussion by distinguishing between different time periods for developed and developing country groups respectively in particular we contribute to a further understanding of the environmental effects of working time reduction policies by comparing the differences under the dynamic framework of system generalized method of moments we applied this dynamic panel regression approach for 55 countries worldwide over the period 1980 2010 and employing carbon emissions per capita as the environmental indicator in general results confirmed the significant relationship between hours of work and environmental impacts in developed economies although this is not the case for the developing counterparts interestingly the significant correlations for the developed country group turned from positive during the first sub period 1980 2000 to negative during the second sub period 2001 2010 connecting these results with previous literature we proposed the reasons of rebound energy use derived from certain leisure activities which were more energy intensive if excessive non working time provided

the redistributive roles of unemployment insurance and the dynamics of voting abstract public unemployment insurance is analyzed as the majority voting equilibrium policy of a dynamic stochastic economy abstracting from incentive effects we focus on redistribution some results are because of the distribution of heterogeneous employment opportunities public insurance may be democratically chosen even if complete private markets exist and because of the dynamics even when agents are intrinsically homogeneous the equilibrium benefit level or duration benefit schedule deviates from what has been described as optimal in the literature the effects of differences in the average frequency or duration of unemployment on equilibrium taxes and benefits are investigated with some unanticipated results

precautionary savings under liquidity constraints a decomposition this paper investigates the effects of liquidity constraints on consumption saving by separating precautionary saving caused by liquidity constraints ps2 from the conventional precautionary saving made against income uncertainty ps1 it is proved that there exists a unique level of wealth below which ps2 is strictly positive and above which liquidity constraints have no effects at all the numerical simulations show that ps2 is quantitatively important depending on age and the level of wealth some empirical findings in the literature cannot be explained by ps1 alone but are consistent with the model in which ps2 is present copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the wealth distribution in bewley economies with capital income risk abstract we study the wealth distribution in bewley economies with idiosyncratic capital income risk we show analytically that under rather general conditions on the stochastic structure of the economy a unique ergodic distribution of wealth displays a fat tail

the energetic metabolism of societies and the degrowth paradigm analyzing biophysical constraints and realities the belief that it is possible to have a perpetual economic growth based on fossil energy has been challenged since the 1970s however only in the last decade is this issue re emerging once again because of the predicaments of climate change and peak oil many finally start to perceive that an economic degrowth entailing a downscaling of the current size and pattern of socio economic systems seem unavoidable in this paper we analyze the implications the feasibility and the desirability of possible trajectories of downscaling from an energetic perspective the quantitative analysis is based on the methodological approach of societal metabolism and it provides a dynamic accounting of the profile of energy flows required and consumed by societies in relation the expression of a given set of societal functions this analysis makes it possible to check two types of constraints external constraints supply and sink side limits for the whole and internal constraints the feasibility of energy budget of the various parts of the society expressing the required functions the analysis of the metabolic pattern of a sample of developed countries is used to discuss possible implications of i demographic changes ii the declining supply of net energy sources and iii the effects of the jevons paradox within such an analysis a few assumptions and recipes of the degrowth movement seem problematic i population is and will remain as a relevant variable to be considered ii the proposed reduction in working hours seem to be impractical unless a major catastrophe will reset current civilization to pre industrial standards and iii voluntary reduction of personal energy consumption even if a welcome adjustment alone will not solve the existing problems in the final part of the paper future energetic road maps are questioned within the realm of post normal science can we plan degrowth if we are serious about the need of doing something completely different societies will have to learn how to deliberate under uncertainty within the realms of flexible management and stop planning for either growth or degrowth moreover before suggesting policies it would be wise first to try to understand the option space

an equilibrium framework for the analysis of a degrowth society with asymmetric agents sharing and basic income abstract this paper presents a novel equilibrium framework allowing for asymmetries in the initial wealth allocations labour supplies as well as in the preferences of optimizing agents the framework is applied to study a degrowth society where a subset of agents voluntarily limit their material consumption thereby complying with voluntary simplicity vs at micro level the utility maximization problems of asymmetric agents are formulated and solved for optimal labour supplies new macro level equilibrium solutions accounting for wealth inequality are presented based on different labour supply models the equilibrium welfare is measured using a bernoully nash aggregate an increase in the share of the vs type agents implies a degrowth transition to a lower level of average consumption analysis of the equilibrium framework shows that degrowth whereby average market based consumption falls improves the equilibrium welfare assuming the vs type agents have sufficient resources enabling a reduction in labour supplies sharing collaborative consumption and basic income support welfare increasing degrowth any growing economy can eventually reach the size at which degrowth would improve the welfare simulations suggest that degrowth can also yield a pareto improvement in welfare

the joint design of unemployment insurance and employment protection a first pass unemployment insurance and employment protection are typically discussed and studied in isolation in this paper we argue that they are tightly linked and we focus on their joint optimal design in a simple model with risk averse workers risk neutral firms and random shocks to productivity we show that in the first best unemployment insurance comes with employment protection in the form of layoff taxes indeed optimality requires that layoff taxes be equal to unemployment benefits we then explore the implications of four broad categories of deviations from first best limits on insurance limits on layoff taxes ex post wage bargaining and ex ante heterogeneity of firms or workers we show how the design must be modified in each case finally we draw out the implications of our analysis for current policy debates and reform proposals from the financing of unemployment insurance to the respective roles of severance payments and unemployment benefits

assessing the degrowth discourse a review and analysis of academic degrowth policy proposals abstract debates on ecological and social limits to economic growth and new ways to deal with resource scarcity without compromising human well being have re emerged in the last few years central to many of these is a call for a degrowth approach in this paper a framework is developed to support a systematic analysis of degrowth in the academic literature this article attempts to present a clearer notion of what the academic degrowth literature explores by identifying organising and analysing a set of proposals for action retrieved from a selection of articles the framework is applied to classify proposals according to their alignment to ecological economics policy objectives sustainable scale fair distribution and efficient allocation type of approach top down versus bottom up and geographical focus local national or international a total of 128 peer reviewed articles focused on degrowth were reviewed and 54 that include proposals for action were analysed the proposals identified align with three broad goals 1 reduce the environmental impact of human activities 2 redistribute income and wealth both within and between countries and 3 promote the transition from a materialistic to a convivial and participatory society the findings indicate that the majority of degrowth proposals are national top down approaches focusing on government as a major driver of change rather than local bottom up approaches as advocated by many degrowth proponents the most emphasised aspects in the degrowth literature are related to social equity closely followed by environmental sustainability topics such as population growth and the implications of degrowth for developing nations are largely neglected and represent an important area for future research moreover there is a need for a deeper analysis of how degrowth proposals would act in combination

unemployment insurance and capital accumulation abstract in this paper i examine a model economy with production search and unemployment insurance the introduction of capital into the economy of wang and williamson j monetary econom 49 7 2001 1337 generates the result that optimal replacement ratios are always zero the result arises from the decline in aggregate activity caused by unemployment insurance both capital and labor inputs to production fall when benefits rise unlike most of the literature i compute explicitly the cost of the transition path agents are made better off by switching to a steady state with no unemployment insurance but the welfare gain is approximately cut in half only the very poor and unemployed suffer welfare losses along the transition path i then briefly investigate the implications of negative replacement ratios

less is more the influence of aspirations and priming on well being abstract if resource consumption is to be reduced through economic de growth individuals in industrialized countries may have to accept a reduction in their consumption levels in democratic societies implementing this process requires the consent of a majority of the population however as long as people have high reference levels of consumption lower consumption will induce feelings of loss and hence evoke resistance this paper summarizes recent experimental evidence on some of the factors that determine the utility costs involved in decreasing consumption the results suggest that the acceptance of economic de growth would be facilitated if people s material aspirations were moderated and the extent to which material achievements are emphasized in our daily environment were reduced an analysis of the financial and economic crisis that developed during 2008 suggests that it will not contribute to either of these points rather by increasing the public s focus on the economic sphere even beyond pre crisis levels it may lead to a further decrease in the acceptance of de growth policies in the population

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

the cost of business cycles and the stabilization value of unemployment insurance this paper o ers a new perspective on why labor market policies aimed at reducing the cost of business cycles may be warranted and how such policies can be designed in order to improve welfare to this end we develop a quantitative dynamic equilibrium model to illustrate how the contractual structure of the labor market may hide signi cant undiversi ed wage risk induced by aggregate uctuations the environment analyzed is such that the only imperfectly diversi ed risk workers bear is the risk of losing their job when the market for new contracts is depressed when we t the model to replicate the amount of wage variation estimated from micro data we obtain estimates of the potential value of stabilization policies that are substantially larger than those found in the literature we use this framework to examine several policy issues and in particular to show why state contingent unemployment insurance may dominate non contingent unemployment insurance schemes 2001 elsevier science b v all rights reserved jel classixcation e32 j41

why environmental sustainability can most probably not be attained with growing production the concepts of welfare economic growth production environmentally sustainable national income environmental sustainability environmental function and asymmetric entering are defined because the confusion about these concepts hampers sound information based on these concepts the arguments are enumerated why it is plausible that environmental sustainability most probably cannot be attained with a growing production level national income ni and why broad acceptance of a lower production level meaning de growth of production will make attaining this goal much easier or at least possible some consequences of unsustainable development are provided and the alleged conflict between employment and environment is refuted the conclusion is that our planet is threatened by a wrong belief in a wrongly formulated growth

heterogeneous agents in quantitative aggregate economic theory abstract modern macroeconomics with increasing frequency is devoting attention to the fact that agents are heterogeneous especially in their role as providers of labor input into production these differences can take various forms the skills for market production are different some workers are and some are not engaged in market activity in any given period people are at different stages of the life cycle people are faced with uninsurable idiosyncratic shocks perhaps combined with liquidity constraints and so on in some cases the equilibrium still can be computed from a stand in planner s problem the most exciting recent development however is the dramatically expanded ability to compute equilibriums for interesting model economies for which that is not the case examples are given

on optimal unemployment compensation abstract the design of an optimal unemployment compensation scheme is analyzed using a dynamic principal agent relationship between a risk neutral planner the principal and risk averse workers the agents where the planner s inability to observe workers job search efforts creates a moral hazard problem to design an implementable scheme we require that each agent is guaranteed a minimum level of expected discounted utility regardless of his past history in contrast with previous studies we find that the optimal contract is quite close to actual unemployment compensation schemes both qualitatively and quantitatively

redistributive taxation and personal bankruptcy in u s states abstract personal bankruptcy regulation and redistributive taxes and transfers vary considerably across u s states and over time our hypothesis is that both policies are imperfect substitutes in insuring consumption of risk averse agents in incomplete markets exploiting data variation over time for 18 u s states for the period 1980 2003 we find considerable support for this hypothesis redistributive taxation and bankruptcy exemptions are negatively correlated and both policies are associated with more equal consumption growth

the costs of recession the paper measures the cost of business cycles by asking what proportion of consumption representative households whose head is currently employed would be prepared to give up to avoid the risk of unemployment previous estimates by lucas suggested that the costs of macroeconomic fluctuations measured in this way are surprisingly small the first part of the paper presents a critique of the lucas aggregate method showing that his estimates are not robust an alternative disaggregated framework is then developed and shows that the costs of macroeconomic fluctuations are significantly higher than those obtained by lucas consequently the view that inflation matters whereas business cycles are unimportant events is questioned copyright 1994 by royal economic society

optimal unemployment insurance in ge a robust calibration approach abstract a simple monte carlo calibration approach is implemented in a ge model with uninsurable employment risk to quantitatively study the optimal replacement rate of a public unemployment insurance ui scheme the optimal ui sampling distribution is found to be bimodal

cash on hand and competing models of intertemporal behavior new evidence from the labor market this paper presents new tests of the permanent income hypothesis and other widely used models of household behavior using data from the labor market we estimate the excess sensitivity of job search behavior to cash on hand using sharp discontinuities in eligibility for severance pay and extended unemployment insurance ui benefits in austria analyzing data for over one half million job losers we obtain three empirical results 1 a lump sum severance payment equal to two months of earnings reduces the job finding rate by 8 12 on average 2 an extension of the potential duration of ui benefits from 20 weeks to 30 weeks similarly lowers job finding rates in the first 20 weeks of search by 5 9 and 3 increases in the duration of search induced by the two programs have little or no effect on subsequent job match quality using a search theoretic model we show that estimates of the relative effect of severance pay and extended benefits can be used to calibrate and test a wide set of intertemporal models our estimates of this ratio are inconsistent with the predictions of a simple permanent income model as well as naive rule of thumb behavior the representative job searcher in our data is 70 of the way between the permanent income benchmark and credit constrained behavior in terms of sensitivity to cash on hand

the sufficiency strategy would rich world frugality lower environmental impact abstract one alleged weapon against unsustainable environmental impact is for the wealthy to consume less this sufficiency strategy is to complement the efficiency strategy of lowering ratios of resource inputs to economic outputs the former would reduce the affluence factor in i pat the latter the technology factor that the latter strategy suffers from a consumption rebound is widely recognized this paper identifies a similar rebound when the affluence factor is autonomously lowered the lower initial demand lowers prices which in turn stimulates new demand by others the strategy moreover addresses only the rich raising questions of its theoretical maximum efficacy its proponents usually conflate frugality with the north south dichotomy and intra generational with inter generational equity moreover there are difficulties with the supporting arguments that frugality is good for one s own sake as well as for the environment and that the rich should lead the way to living more lightly personal behaviour change is furthermore not a substitute for international political efforts finally since all changes in right side factors of the i pat equation change other right side factors such indirect attacks on impact should be abandoned in favor of supply and emissions quotas