Should Unemployment Insurance Vary With the Unemployment Rate? Theory and Evidence / Kory Kroft, Matthew J. Notowidigdo.

Format:

Book

Author/Creator:

Kroft, Kory.

Contributor:

National Bureau of Economic Research.

Notowidigdo, Matthew J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17173.

NBER working paper series no. w17173

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

We study how the level of unemployment insurance (UI) benefits that trades off the consumption smoothing benefit with the moral hazard cost of distorting job search behavior varies over the business cycle. Empirically, we find that the moral hazard cost is procyclical, greater when the unemployment rate is relatively low. By contrast, our evidence suggests that the consumption smoothing benefit of UI is acyclical. Using these estimates to calibrate our model, we find that a one standard deviation increase in the unemployment rate leads to a roughly 14 to 27 percentage point increase in the welfare-maximizing wage replacement rate.

Notes:

Print version record

June 2011.