TY  - JOUR
AU  - Shimer,Robert
AU  - Werning,Ivan
TI  - Reservation Wages and Unemployment Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12618
PY  - 2006
Y2  - October 2006
UR  - http://www.nber.org/papers/w12618
L1  - http://www.nber.org/papers/w12618.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 argues that a risk-averse worker's after-tax reservation wage encodes all the relevant information about her welfare. This insight leads to a novel test for the optimality of unemployment insurance based on the responsiveness of reservation wages to unemployment benefits. Some existing estimates imply significant gains to raising the current level of unemployment benefits in the United States, but highlight the need for more research on the determinants of reservation wages. Our approach complements those based on Baily's (1978) test.
ER  -