Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-19T18:36:44.465Z Has data issue: false hasContentIssue false
  • English
  • Français

UNEMPLOYMENT INSURANCE AND THE BUSINESS CYCLE: SHOULD BENEFIT ENTITLEMENT DURATION REACT TO THE CYCLE?

Published online by Cambridge University Press:  02 October 2012

Stéphane Moyen  and
Nikolai Stähler
Stéphane Moyen*
Affiliation:
Deutsche Bundesbank
Nikolai Stähler
Affiliation:
Deutsche Bundesbank
*
Address correspondence to: Stéphane Moyen, Deutsche Bundesbank, Research Department, Wilhelm-Epstein-Str. 14, 60431 Frankfurt a.M., Germany; e-mail: stephane.moyen@bundesbank.de.
Get access Rights & Permissions [Opens in a new window]

Abstract

The aim of this paper is to study the optimal duration of unemployment benefit entitlement across the business cycle. We analyze whether the entitlement duration should be prolonged in bad and shortened in good times. Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely and/or as long as it can even help to reduce inefficiencies there. If, however, the labor market is already quite inflexible, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the United States but not in Europe.

Keywords

Unemployment InsuranceEntitlement DurationBusiness Cycle
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 3 , April 2014 , pp. 497 - 525
Copyright
Copyright © Cambridge University Press 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aghion, P. and Saint-Paul, G. (1998) Uncovering some causal relationships between productivity growth and the structure of economic fluctuations: A tentative survey. Labour 12, 279–303.CrossRefGoogle Scholar
Andersen, T.M. and Svarer, M. (2008) The Role of Workfare in Striking a Balance Between Incentives and Insurance in the Labour Market. University of Aarhus Economics Working Papers Series, No. 2008-05, Aarhus.Google Scholar
Andersen, T.M. and Svarer, M. (2009) Business Cycle Dependent Unemployment Insurance. CEPR working paper 7334, London.CrossRefGoogle Scholar
Andolfatto, D. (1996) Business cycles and labor-market search. American Economic Review 86, 112–132.Google Scholar
Arseneau, D.M. and Chugh, S.K. (2009) Tax Smoothing in Frictional Labor Markets. International Finance Discussion Paper 965, Board of Governors of the Federal Reserve System (U.S.).CrossRefGoogle Scholar
Arulampalam, W. and Stewart, M. (1995) The determinants of individual unemployment duration in an era of high unemployment. Economic Journal 105, 321–332.CrossRefGoogle Scholar
Ball, L.M. (2009) Hysteresis in Unemployment: Old and New Evidence. NBER working paper 14818.CrossRefGoogle Scholar
Barro, R.J. (1979) On the determination of public debt. Journal of Political Economy 87, 940–971.CrossRefGoogle Scholar
Blanchard, O., Cottarelli, C., Spilimbergo, A., and Symansky, S. (2008) Fiscal Policy for the Crisis. IMF staff position note, December 29, 2009, available at http://www.imf.org/.CrossRefGoogle Scholar
Boscá, J.E., Díaz, A., Doménech, R., Pérez, E., Ferri, J., and Puch, L. (2010) A rational expectations model for simulation and policy evaluation of the Spanish economy. Journal of the Spanish Economic Association 1–2, 135–169.Google Scholar
Boscá, J.E., Doménech, R., and Ferri, J. (2011) Search, Nash bargaining and rule of thumb consumers. European Economic Review 55, 927–942.CrossRefGoogle Scholar
Burda, M. and Wyplosz, C. (1994) Gross worker and job flows in Europe. European Economic Review 38, 1287–1315.CrossRefGoogle Scholar
Cahuc, P. and Le Barbanchon, T. (2010) Labor market policy evaluation in equilibrium: Some lessons of the job search and matching model. Labour Economics 17 (1), 196–205.CrossRefGoogle Scholar
Christoffel, K., Kuester, K., and Linzert, T. (2009) The role of labor markets for euro area monetary policy. European Economic Review 53, 908–936.CrossRefGoogle Scholar
Coenen, G., McAdam, P., and Straub, R. (2008) Tax reform and labour-market performance in the Euro Area: A simulation-based analysis using the New Area-Wide Model. Journal of Economic Dynamics and Control 32, 2543–2583.CrossRefGoogle Scholar
Committee on Ways and Means (2004) The 2004 Green Book Background Material and Data on Programs Within the Jurisdiction of the House Committee on Ways and Means, 18th ed. U.S. House of Representatives. Available at http://www.waysandmeans.house.gov/Documents.asp?section=813/.Google Scholar
Costain, J.S. and Reiter, M. (2005) Stabilization versus Insurance: Welfare Effects of Procyclical Taxation under Incomplete Markets. Economics working paper 890, Department of Economics and Business, Universitat Pompeu Fabra, Barcelona.CrossRefGoogle Scholar
Flinn, C.J. (2006) Minimum wage effects on labor market outcomes under search, matching, and endogenous contact rates. Econometrica 74, 1013–1062.CrossRefGoogle Scholar
Forni, L., Montefort, L., and Sessa, L. (2009) The general equilibrium effects of fiscal policy: Estimates for the euro area. Journal of Public Economics 93, 559–585.CrossRefGoogle Scholar
Frederiksson, P. and Holmlund, B. (2001) Optimal unemployment insurance in search equilibrium. Journal of Labor Economics 19, 370–399.CrossRefGoogle Scholar
Frederiksson, P. and Holmlund, B. (2006) Improving incentives in unemployment insurance: A review of recent research. Journal of Economic Surveys 20, 357–386.CrossRefGoogle Scholar
Galí, J., Lopez-Salido, J.D., and Vallés, J. (2007) Understanding the effects of government spending on consumption. Journal of the European Economics Association 5, 227–270.CrossRefGoogle Scholar
Hansen, G.D. and Imrohoroglu, A. (1992) The role of unemployment insurance in an economy with liquidity constraints and moral hazard. Journal of Political Economy 100 (1), 118–142.CrossRefGoogle Scholar
Hobijn, B. and Sahin, A. (2007) Job-Finding and Separation Rates in the OECD. Staff report 298, Federal Reserve Bank of New York, New York.CrossRefGoogle Scholar
Hosios, A.J. (1990) On the efficiency of matching and related models of search and unemployment. Review of Economic Studies 57, 279–298.CrossRefGoogle Scholar
Jurajda, S. and Tannery, F.J. (2003) Unemployment durations and extended unemployment benefits in local labor markets. Industrial and Labor Relations Review 56, 324–348.CrossRefGoogle Scholar
Kiley, M.T. (2003) How should unemployment benefits respond to the business cycle? Topics in Economic Analysis and Policy 3, 1–20.CrossRefGoogle Scholar
Landais, C., Michaillat, P., and Saez, E. (2010) Optimal Unemployment Insurance Over the Business Cycle. NBER working paper 16526, Cambridge, MA.Google Scholar
Lucas, R.E. Jr. and Stokey, N.L. (1983) Optimal fiscal and monetary policy in an economy without capital. Journal of Monetary Economics 12, 55–93.CrossRefGoogle Scholar
Merz, M. (1995) Search in the labor market and the real business cycle. Journal of Monetary Economics 36, 269–300.CrossRefGoogle Scholar
Mortensen, D.T. and Pissarides, C. (1999) New Developments in Models of Search in the Labor Market. In Ashenfelter, O. and Card, D. (eds.), Handbook of Labor Economics, vol. 3B, pp. 2567–2627. Amsterdam: Elsevier.Google Scholar
Nakajima, M. (2011) A Quantitative Analysis of Unemployment Benefit Extensions. Working paper 11-8, Federal Reserve Bank of Philadelphia, Philadelphia, PA.CrossRefGoogle Scholar
OECD (2009) Economic Outlook. Paris.Google Scholar
Ortega, J. and Rioux, L. (2010) On the extent of re-entitlement effects in unemployment compensation. Labour Economics 17 (2), 368–382.CrossRefGoogle Scholar
Oswald, A.J. (1993) Efficient contracts are on the labour demand curve: Theory and facts. Labour Economics 1, 85–113.CrossRefGoogle Scholar
Petrongolo, B. and Pissarides, C.A. (2001) Looking into the black box: A survey of the matching function.Journal of Economic Literature 39, 390–431.CrossRefGoogle Scholar
Pissarides, C. (2000) Equilibrium Unemployment Theory. 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Priesmeier, C. and Stähler, N. (2011) Long dark shadows or innovative spirits? The effects of (smoothing) business cycles on economic growth: A survey of the literature. Journal of Economic Surveys 25, 898–912.CrossRefGoogle Scholar
Røed, K. and Zhang, T. (2005) Unemployment duration and economic incentives—A quasi-random-assignment approach. European Economic Review 49, 1799–1825.CrossRefGoogle Scholar
Sanchez, J. (2008) Optimal state-contingent unemployment insurance. Economics Letters 98, 348–357.CrossRefGoogle Scholar
Schmitt-Grohé, S. and Uribe, M. (2007) Optimal simple and implementable monetary and fiscal rules.Journal of Monetary Economics 54, 1702–1725.CrossRefGoogle Scholar
Shimer, R. (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95, 25–49.CrossRefGoogle Scholar
Smets, F. and Wouters, R. (2003) An estimated stochastic general equilibrium model of the Euro Area. Journal of the European Economic Association 1, 1123–1175.CrossRefGoogle Scholar
SZ (Süddeutsche Zeitung) (2009) Arbeitslosengeld länger auszahlen. July 18, 2009. Available at http://www.sueddeutsche.de/wirtschaft/595/481071/text/.Google Scholar