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Measuring Unemployment Insurance Generosity

Published online by Cambridge University Press:  04 January 2017

Stéphane Pallage ,
Lyle Scruggs  and
Christian Zimmermann
Stéphane Pallage*
Affiliation:
Département des Sciences Économiques ESG, Université du Québec è Montréal, PO Box 8888 Downtown Station, Montreal, QC, H3C 3P8, Canada
Lyle Scruggs
Affiliation:
Department of Political Science, University of Connecticut and Russell Sage Foundation, 365 Fairfield Way, Room 431, U-1024, Storrs, CT 06269 e-mail: lyle.scruggs@uconn.edu
Christian Zimmermann
Affiliation:
Economic Research Division, Federal Reserve Bank of St. Louis, IZA, RCEA and CESifo, PO Box 442, St. Louis, MO 63166-0442 e-mail: zimmermann@stlouisfed.org
*
e-mail: pallage.stephane@uqam.ca (corresponding author)
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Abstract

Unemployment insurance policies are multidimensional objects, with variable waiting periods, eligibility duration, benefit levels, and asset tests, making intertemporal or international comparisons very difficult. Furthermore, labor market conditions, such as the likelihood and duration of unemployment, matter when assessing the generosity of different policies. In this article, we develop a new methodology to measure the generosity of unemployment insurance programs with a single metric. We build a first model with all characteristics of the complex unemployment insurance policy. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model, similar in all aspects but one: the unemployment insurance policy is one-dimensional (no waiting periods, eligibility limits, or asset tests, but constant benefits). We then determine which level of benefits in this second model makes society indifferent between both policies. We apply this measurement strategy to the unemployment insurance program of the United Kingdom.

Type
Research Article
Information
Political Analysis , Volume 21 , Issue 4 , Autumn 2013 , pp. 524 - 549
Copyright
Copyright © The Author 2013. Published by Oxford University Press on behalf of the Society for Political Methodology 

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Footnotes

Authors' note: We thank the editor, Vera Troeger, and two referees for very useful comments that have helped make this article stronger. All results found in this article can be replicated using the codes and data available at http://hdl.handle.net/1902.1/21425. The views expressed are those of individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.

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