do labor market policies have displacement effects evidence from a clustered randomized experiment this article reports the results from a randomized experiment designed to evaluate the direct and indirect displacement impacts of job placement assistance on the labor market outcomes of young educated job seekers in france we use a two step design in the first step the proportions of job seekers to be assigned to treatment 0 25 50 75 or 100 were randomly drawn for each of the 235 labor markets e g cities participating in the experiment then in each labor market eligible job seekers were randomly assigned to the treatment following this proportion after eight months eligible unemployed youths who were assigned to the program were significantly more likely to have found a stable job than those who were not but these gains are transitory and they appear to have come partly at the expense of eligible workers who did not benefit from the program particularly in labor markets where they compete mainly with other educated workers and in weak labor markets overall the program seems to have had very little net benefits

unemployment and effort at work we measure the sensitivity of work effort to local labour market conditions using self reported non work at the workplace in the american time use survey atus 2003 12 non work at work is quantitatively significant and varies positively with local unemployment but in opposite directions at the extensive and intensive margins the fraction of workers reporting positive values declines with unemployment while time spent in non work conditional on any such time rises with unemployment the results speak to issues of labour hoarding efficiency wages and the cyclicality of labour productivity we also demonstrate a relationship between the incidence of non work and unemployment benefits in state data linked to the atus there are also pronounced occupational differences in the incidence and intensity of non work

extended benefits and the duration of ui spells evidence from the new jersey extended benefit program abstract this paper examines the impact on the duration of unemployment insurance receipt of a politically motivated program that offered 13 weeks of extended benefits for 6 months in 1996 using state level data and individual administrative records from before during and after the program we find that it raised the fraction of claimants who exhausted their regular benefits by 1 3 percentage points had the program run long enough to affect claimants from the first day of their spell the fraction exhausting would have risen by 7 percentage points and the average recipient would have collected regular benefits for one extra week

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

consumption smoothing and the welfare consequences of social insurance in developing economies studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance a common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations we present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse hence social safety nets could be valuable in low income economies even when consumption is not very sensitive to shocks

consumption smoothing and debtor protections abstract protections for defaulting debtors are a widely used form of consumption insurance this paper evaluates the costs and benefits of this insurance both inside and outside of bankruptcy first i show that consumption declines by 6 upon default revealing a potential role for greater debtor protections to smooth consumption second i use changes in states laws to estimate the impact of one type of debtor protection asset exemptions on repayment in default and interest rates while higher exemptions smooth consumption by reducing collection in default the interest rate cost is large relative to the benefits adapting a sufficient statistics formula from the literature the estimates imply that the cost of additional exemption protection exceeds what debtors are willing to pay

the effects of changes of the job offer arrival rate on the duration of unemployment generally it is acknowledged that changing the job offer arrival rate has two opposite effects on unemployment duration for a basic job search model sufficient conditions on the wage offer distribution have been derived ensuring that one of the effects dominates however these are not satisfied for the popular families of wage offer distributions here i show that the conditions can be weakened at virtually no cost the set of distributions satisfying the new conditions is considerably larger than the set previously established in particular it includes all wage offer distribution families that are popular in structural empirical research

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

the effect of unemployment benefits on the duration of unemployment insurance receipt new evidence from a regression kink design in missouri 2003 2013 abstract we provide new evidence on the effect of the unemployment insurance ui weekly benefit amount on unemployment insurance spells based on administrative data from the state of missouri covering the period 2003 2013 identification comes from a regression kink design that exploits the quasi experimental variation around the kink in the ui benefit schedule we find that ui durations are more responsive to benefit levels during the recession and its aftermath with an elasticity between 0 65 and 0 9 as compared to about 0 35 pre recession

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

potential unemployment insurance duration and labor supply the individual and market level response to a benefit cut we examine how a 16 week cut in potential unemployment insurance ui duration in missouri affected search behavior of ui recipients and the aggregate labor market using a regression discontinuity

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

the general equilibrium impacts of unemployment insurance evidence from a large online job board abstract during the great recession u s unemployment benefits were extended by up to 73 weeks theory predicts that extensions increase unemployment by discouraging job search a partial equilibrium effect using data from the large job board careerbuilder com i find that a 10 increase in benefit duration decreased state level job applications by 1 but had no robust effect on job vacancies job seekers thus faced reduced competition for jobs a general equilibrium effect calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 39

separations sorting and cyclical unemployment abstract this paper establishes a new fact about the compositional changes in the pool of unemployed over the us business cycle using microdata from the current population survey for the years 1962 2012 it documents that in recessions the pool of unemployed shifts toward workers with high wages in their previous job and that these shifts are driven by the high cyclicality of separations for high wage workers the paper finds that standard theories of wage setting and unemployment have difficulty in explaining these patterns and evaluates a number of alternative theories that do better in accounting for the new fact jel e24 e32 j31 j63 j64

market externalities of large unemployment insurance extension programs we provide evidence that unemployment insurance affects equilibrium conditions in the labor market which creates significant market externalities we provide a framework for identification of such equilibrium effects and implement it using the regional extension benefit program rebp in austria which extended the duration of ui benefits for a large group of eligible workers in selected regions of austria we show that non eligible workers in rebp regions have higher job finding rates lower unemployment durations and a lower risk of long term unemployment we discuss the implications of our results for optimal ui policy jel e24 j64 j65 r23

unemployed but optimistic optimal insurance design with biased beliefs biased perceptions of risks change the perceived value of insurance and the per ceived returns to avoiding these risks i show empirically that unemployed workers overestimate how quickly they will nd work but underestimate the return to their search eorts i analyze the consequences for the optimal design of unemployment insurance with biased beliefs contracts equalizing the marginal smoothing ben e t and the moral hazard cost of insurance are suboptimal social and private insurance diverge a paternalistic social planner corrects the moral hazard cost for the distortion in the insured s eort choice while private insurers focus on the perceived rather than the true smoothing bene ts when unemployed workers are optimistic privatizing unemployment insurance may result in ine ciently low or rapidly decreasing unemployment bene ts

unemployment insurance strengthening the relationship between theory and policy ever since the u s federal state system of unemployment insurance was founded in the 1930s it has provided partial temporary replacement of wages to eligible workers who lose jobs through no fault of their own as determined by state level regulations unemployment insurance is one of the largest social insurance programs in the united states with benefits paid totaling about 34 billion in 2004 this figure is considerably smaller than for social security medicare or medicaid but it exceeds spending on such major programs as workers compensation temporary assistance to needy families tanf or food stamps in this paper we focus on the ways economic theory can help us understand the challenges that this complex program is likely to face over the next few years we begin by summarizing the salient characteristics of the unemployment insurance program and then examine the theoretical and econometric research much of this research revolves around the main goals of the program which include 1 sustaining consumption for workers and their families 2 helping recipients to make efficient job choices during a period of financial stress and 3 minimizing the adverse incentives that may accompany partial wage replacement of course these goals can come into conflict for example if replacing wages for an unemployed worker also discourages that worker from aggressively searching for or accepting a new job and our discussion will focus on these conflicts with this background we then conclude with a discussion of the key policy issues that the unemployment

external validity in a stochastic world evidence from low income countries we examine empirically the generalizability of internally valid micro estimates of causal effects in a fixed population over time when that population is subject to aggregate shocks using panel data we show that the returns to investments in agriculture in india and ghana small and medium non farm enterprises in sri lanka and schooling in indonesia fluctuate significantly across time periods we show how the returns to these investments interact with specific measurable and economically relevant aggregate shocks focusing on rainfall and price fluctuations we also obtain lower bound estimates of confidence intervals of the returns based on estimates of the parameters of the distributions of rainfall shocks in our two agricultural samples we find that even these lower bound confidence intervals are substantially wider than those based solely on sampling error that are commonly provided in studies most of which are based on single year samples we also find that cross sectional variation in rainfall cannot be confidently used to replicate within population rainfall variability based on our findings we discuss methods for incorporating information on external shocks into evaluations of the returns to policy

an econometric analysis of reservation wages this paper describes an analysis of survey data on unemployed people who reported their asking wage and the wage they expected to earn we show that if agents behavior is described by the standard optimal job search model one can use these data to deduce structural parameters rather than estimate them and we report our deductions from two surveys 1 of british unemployed people

how changes in labor demand affect unemployed workers this study analyzes the manner in which certain favorable shifts in labor demand affect job search although all shifts increase reservation wages they do not necessarily decrease expected unemployment spell durations and increase expected post unemployment wages so that upward sloping short run phillips curves may occur a result due to chamberlain is used to demonstrate that if the wage offer distribution is restricted to be logconcave two of the shifts guarantee downward sloping phillips curves for one of these two shifts previous research by flinn and heckman used logconcavity in a different manner to achieve properly shaped phillips curves

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

the effects of extended unemployment insurance over the business cycle evidence from regression discontinuity estimates over 20 years one goal of extending the duration of unemployment insurance ui in recessions is to increase ui coverage in the face of longer unemployment spells although it is a common concern that such extensions may themselves raise nonemployment durations it is not known how recessions would affect the magnitude of this moral hazard to obtain causal estimates of the differential effects of ui in booms and recessions this article exploits the fact that in germany potential ui benefit duration is a function of exact age which is itself invariant over the business cycle we implement a regression discontinuity design separately for 20 years and correlate our estimates with measures of the business cycle we find that the nonemployment effects of a month of additional ui benefits are at best somewhat declining in recessions yet the ui exhaustion rate and therefore the additional coverage provided by ui extensions rises substantially during a downturn the ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by ui extensions hence our results imply that the effective moral hazard effect of ui extensions is significantly lower in recessions than in booms using a model of job search with liquidity constraints we also find that in the absence of market wide effects the net social benefits from ui extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of ui durations or as a declining function of our measure of effective moral hazard copyright 2012 oxford university press

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

seasonal concentration of the hotel demand in costa del sol a decomposition by nationalities abstract costa del sol is a mature mediterranean destination in the south of spain with a degree of seasonality that has shown little variation during the last 20 years in this paper we apply the decomposition of the gini index of seasonal concentration by nationalities the main outcome of this decomposition is the estimation of relative contributions to the overall seasonal concentration and marginal effects by nationalities these measures can be of great help in the design of counter seasonal policies our results suggest that planners interested in reducing seasonality may concentrate their efforts in consolidating markets with negative marginal effect over the index of concentration like the british and nordic ones in addition marketing targets may be focused primarily in the winter season for the markets with positive relative marginal effect

labor market effects of unemployment insurance design with the emergence of the great recession unemployment insurance ui is once again at the heart of the policy debate in this paper we review the recent theoretical and empirical evidence on the labor market effects of ui design we also discuss policy issues related to ui design including the structure of benefits the role of liquidity constraints and the pros and cons of a ui system in which the generosity of ui benefits is varying over the business cycle finally we identify potential areas of future research

reexamining the consumption smoothing benefits of unemployment insurance abstract the great recession spurred renewed interest in the moral hazard effects of the unemployment insurance ui program however little research has focused on determining its benefits this paper examines the consumption smoothing benefit of the ui program over the last 40 years finding strong evidence of heterogeneity in this effect over time in particular the effects of ui are smaller in the 1990s compared with the 1970s the 1990s were unique because of the long period of low unemployment rates as well as relatively low ui program generosity thus we test whether the consumption smoothing effects vary by the state unemployment rate and average program generosity we find suggestive evidence that the effects are larger when the state unemployment rate and average generosity are high together these two dimensions can explain around 30 46 of the differential effect that we find in the 1990s

time use during the great recession using data from the american time use survey between 2003 and 2010 we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies leisure absorbs roughly 50 percent of foregone market work hours with sleeping and television watching accounting for most of this increase we document significant increases in time spent on shopping child care education and health job search absorbs between 2 and 6 percent of foregone market work hours we discuss the implications of our results for business cycle models with home production and non separable preferences jel codes d13 e32 j22

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

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

investment incentives and corporate tax asymmetries abstract recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money i model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses i estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4 less effective than they would have been if all firms were fully taxable cash flows have more important effects on the impact of tax incentives recent declines in cash flows would predict a 24 decrease in the effectiveness of bonus depreciation results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place during downturns in economic activity when cash flows are low

unemployment durations and extended unemployment benefits in local labor markets many empirical studies have confirmed the theoretical prediction that longer term unemployment insurance ui entitlement leads to longer unemployment duration most of those studies have examined

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

duration dependence and labor market conditions evidence from a field experiment this article studies the role of employer behavior in generating negative duration dependence the adverse effect of a longer unemployment spell by sending fictitious resumes to real job postings in 100 u s cities our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker s unemployment spell with the majority of this decline occurring during the first eight months we explore how this effect varies with local labor market conditions and find that duration de pendence is stronger when the local labor market is tighter this result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets jel code j64

job search and savings wealth effects and duration dependence this article studies a risk averse worker s optimal savings and job search behavior as she moves back and forth between employment and unemployment we show that job search effort is negatively related to wealth under the assumption of additively separable utility consequently job search exhibits positive unemployment duration dependence because wealth is drawn down to smooth consumption as the spell progresses finally given optimal search savings still provide imperfect insurance against income fluctuations precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path will not be perfectly smooth over states

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

the effect of extended unemployment insurance benefits evidence from the 2012 2013 phase out unemployment insurance benefit durations were extended during the time of shedding and cold rocks reaching 99 weeks for most recipients the extensions were rolled back and eventually terminated by the end of 2013 using matched cps data from 2008 2014 we estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback in both periods we find little or no effect on job finding but a reduction in labor force exits due to benefit availability we estimate that the rollbacks reduced the labor force participation rate by about 0 1 percentage point in early 2014

a unified welfare analysis of government policies we conduct a comparative welfare analysis of 133 historical policy changes over the past half century in the united states focusing on policies in social insurance education and job training taxes and cash transfers and in kind transfers for each policy we use existing causal estimates to calculate both the benefit that each policy provides its recipients measured as their willingness to pay and the policy s net cost inclusive of long term impacts on the government s budget we divide the willingness to pay by the net cost to the government to form each policy s marginal value of public funds or its mvpf comparing mvpfs across policies provides a unified method of assessing their impact on social welfare our results suggest that direct investments in low income children s health and education have historically had the highest mvpfs on average exceeding 5 many such policies have paid for themselves as governments recouped the cost of their initial expenditures through additional taxes collected and reduced transfers we find large mvpfs for education and health policies amongst children of all ages rather than observing diminishing marginal returns throughout childhood we find smaller mvpfs for policies targeting adults generally between 0 5 and 2 expenditures on adults have exceeded this mvpf range in particular if they induced large spillovers on children we relate our estimates to existing theories of optimal government policy and we discuss how the mvpf provides lessons for the design of future research

liquidity and insurance for the unemployed we study the optimal design of unemployment insurance for workers sampling job opportunities over time we focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset when workers have constant absolute risk aversion preferences it is optimal to use a very simple policy a constant benefit during unemployment a constant tax during employment that does not depend on the duration of the spell and free access to savings using a riskless asset away from this benchmark for constant relative risk aversion preferences the welfare gains of more elaborate policies are minuscule our results highlight two largely distinct roles for policy toward the unemployed a ensuring workers have sufficient liquidity to smooth their consumption and b providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

the relationship between unemployment spells and reservation wages as a test of search theory the theory of stationary job search predicts that controlling for other factors that affect the probability of leaving unemployment duration and reservation wages are likely to be positively associated the paper tests this prediction for british cross sectional data from 1982 using an estimating equation implied by search theory simultaneity is crucial in the evaluation of this prediction with single equation and instrumental variable estimates differing markedly perhaps surprisingly given the extreme paucity of both job interviews and offers in the sample the main finding is that reservation wages play a significant role in the determination of duration

takeup social multipliers and optimal social insurance abstract this paper examines the optimal provision of unemployment insurance ui in a framework that accounts for behavioral responses along both the intensive and extensive margins two formulations of takeup are considered in the first individuals face a takeup cost that is exogenous in the second the cost depends endogenously on the takeup rate such endogenous costs to takeup lead to a social multiplier a reduced form parameter summarizing the strength of social interactions this paper derives a formula for the optimal replacement rate in terms of the takeup and duration elasticities and the social multiplier the formula is applied by estimating the social multiplier using policy variation in ui benefit levels the results suggest that social multiplier effects account for 35 of the total effect of ui on takeup and yield an optimal replacement rate around 60 of pre unemployment wages 20 higher than previous estimates

should unemployment insurance vary with the unemployment rate theory and evidence we study how the marginal welfare gain from increasing the unemployment insurance ui bene t level varies over the business cycle we do this by estimating how the moral hazard cost and the consumption smoothing bene t of ui vary with labor market conditions which we identify using variation in the interaction of ui bene t levels with the unemployment rate within u s states over time we nd that the moral hazard cost is procyclical greater when the unemployment rate is relatively low by contrast we do not nd evidence that the consumption smoothing bene t varies with the unemployment rate we use these empirical results to estimate the marginal welfare gain and we nd that it is modest on average but varies positively with the unemployment rate jel h5 j64 j65

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

the determinants of individual unemployment durations in an era of high unemployment this paper presents the results of an econometric analysis of the conditional probability of leaving unemployment for two male inflow cohorts entering unemployment at very different points in time 1978 and 1987 the effect of income while unemployed is found to be much weaker for the i987 cohort an elasticity of o i compared with 0 4 and is only found to be significant for teenagers and in the first three months of a spell demand constraints measured by the local unemployment rate are found to have a stronger negative effect on the exit probability for the i987 cohort than in 1978 the i 980s witnessed continual high levels of unemployment in britain and the movement of unemployment up the economic and political agenda unemployment results in major output and income losses and is the cause of much misery to those involved the nation is poorer because of it for both reasons it is therefore important to understand the process that generates a given level of unemployment this process can be considered in terms of two key probabilities the probability of an individual entering unemployment and the probability of an unemployed individual leaving unemployment to take up a job or for other reasons these probabilities will vary with the characteristics of the individual concerned and over time changes in the aggregate unemployment rate can under certain assumptions be decomposed into changes in the inflow rate into unemployment and changes in the steady

optimal state contingent unemployment insurance since the probability of finding a job is aected not only by individual eort but also by the aggregate state of the economy designing unemployment insurance payments conditional on the business cycle could be valuable this paper answers a fundamental question related to this issue how should the payments vary with the aggregate state of the economy

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

reference dependent job search evidence from hungary we propose a model of job search with reference dependent preferences with loss aversion relative to recent income the reference point in this model newly unemployed individuals search hard since consumption is below their reference point over time though they get used to lower income and thus reduce their search effort in anticipation of a benefit cut their search effort rises again then declines once they get accustomed to the lower postcut benefit level the model fits the typical pattern of exit from unemployment even with no unobserved heterogeneity to distinguish between this and other models we use a unique reform in the unemployment insurance ui benefit path in 2005 hungary switched from a single step ui system to a two step system with overall generosity unchanged the system generated increased hazard rates in anticipation of and especially following benefit cuts in ways the standard model has a hard time explaining we estimate a model with optimal consumption endogenous search effort and unobserved heterogeneity the reference dependent model fits the hazard rates substantially better than plausible versions of the standard model including habit formation our estimates indicate a slow adjusting reference point and substantial impatience likely reflecting present bias jel codes d03 j64 j65

a general formula for the optimal level of social insurance in an influential paper baily 1978 showed that the optimal level of unemployment insurance ui in a stylized static model depends on only three parameters risk aversion the consumption smoothing benefit of ui and the elasticity of unemployment durations with respect to the benefit rate this paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance i show that a baily type expression with an adjustment for precautionary saving motives holds in a general class of dynamic models subject to weak regularity conditions for example the simple reduced form formula derived here applies with arbitrary borrowing constraints durable consumption goods private insurance arrangements and search and leisure benefits of unemployment

unemployment insurance benefit levels and consumption changes abstract we use a canadian survey of the unemployed to examine how household expenditures after a job loss respond to the level of income replacement provided by ui we isolate a liquidity constraint or transitory income effect from the permanent income shock of job loss and from the costs of working we find significant effects of varying the replacement ratio among the third of the sample who did not have assets at the job loss we conclude that the consumption smoothing benefit of ui is concentrated wholly on a sub group of the unemployed

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

urban economics for the developing world an introduction this is an introduction to the special issue of the journal of urban economics on urbanization in developing countries past and present we argue that the rapid urbanization and the rise of cities in the developing world demand new avenues of research and much more research to deal with the urban issues facing billions of people across the world that current work barely covers this issue contains papers which move in that direction and signals a commitment by the journal to pursue this agenda