On the optimal timing of benefits with heterogeneous workers and human capital depreciation
By: Robert Shimer [and] Ivǹ Werning
Contributors: Werning, Ivǹ; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 06-12; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 06-12.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Number of pages: 29
Description: This paper studies the optimal timing of unemployment insurance subsidies in a McCall search model. Risk-averse workers sequentially sample random job opportunities. Our model distinguishes unemployment subsidies from consumption during unemployment by allowing workers to save and borrow freely. When the insurance agency faces a group of homogeneous workers solving stationary search problems, the optimal subsidies are independent of unemployment duration. In contrast, when workers are heterogeneous or when human capital depreciates during the spell, the optimal subsidy is no longer constant. We explore the main determinants of the shape of the optimal subsidy schedule, isolating forces for subsidies to optimally rise or fall with duration. Keywords: unemployment insurance, liquidity, search. JEL Classifications: J6.
Notes: "April 25, 2006."

Includes bibliographical references (p. 29).

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