NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk Shifting, Unemployment Insurance, and Layoffs

Herschel I. Grossman

NBER Working Paper No. 424 (Also Reprint No. r0187)
Issued in 1980
NBER Program(s):   LS   EFG

This paper develops an analysis of labor markets in which the use of layoffs to effect employment separations does not imply that markets fail to clear or that the amount of employment is suboptimal relative to current perceptions. This analysis focuses on the interaction between contractual arrangements for shifting risk from workers to employers and tax-financed unemployment insurance. The key element in the analysis is that unemployment insurance is more attractive than risk shifting as a way for workers to obtain income during unemployment. The paper also analyses the effects of risk shifting and unemployment insurance on the magnitude of employment fluctuations. The analysis implies that, given the existence of unemployment insurance, the existence of risk-shifting arrangements makes employment less variable.

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Document Object Identifier (DOI): 10.3386/w0424

Published:

  • Grossman, Herschel I, 1981. "Incomplete Information, Risk Shifting, and Employment Fluctuations," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 189-97, April. ,
  • Grossman, Herschel. "Risk Shifting, Unemployment Insurance and Layoffs." The Economics of the Labour Market, edited by Hornstein, Grice, and Webb, pp. 259-277. London: Her Majesty's Stationery Office, 1981.

 
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