TY  - JOUR
AU  - Shimer,Robert
AU  - Werning,Iván
TI  - On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12230
PY  - 2006
Y2  - May 2006
UR  - http://www.nber.org/papers/w12230
L1  - http://www.nber.org/papers/w12230.pdf
N1  - Author contact info:
Robert Shimer
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-9015
E-Mail: shimer@uchicago.edu

Ivan Werning
MIT Department of Economics
50 Memorial Drive, E51-251a
Cambridge, MA 02142-1347
Tel: 617/452-3662
Fax: 617/253-1330
E-Mail: iwerning@mit.edu
AB  - 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.
ER  -