NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Macroeconomic Theory of Optimal Unemployment Insurance

Camille Landais, Pascal Michaillat, Emmanuel Saez

NBER Working Paper No. 16526
Issued in November 2010
NBER Program(s):   EFG   PE

We develop a theory of optimal unemployment insurance (UI) that accounts for workers’ job-search behavior and firms’ hiring behavior. The optimal replacement rate of UI is the conventional Baily [1978]-Chetty [2006a] rate, which solves the trade-off between insurance and job-search incentives, plus a correction term, which is positive when UI brings the labor market tightness closer to efficiency. For instance, when tightness is inefficiently low, optimal UI is more generous than the Baily-Chetty rate if UI raises tightness and less generous if UI lowers tightness. We propose empirical criteria to determine whether tightness is inefficiently high or low and whether UI raises or lowers tightness. The theory has implications for the cyclicality of optimal UI.

download in pdf format
   (403 K)

email paper

This paper is available as PDF (403 K) or via email.

This paper was revised on February 27, 2015

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16526

Users who downloaded this paper also downloaded these:
Kroft and Notowidigdo w17173 Should Unemployment Insurance Vary With the Unemployment Rate? Theory and Evidence
Rothstein w17534 Unemployment Insurance and Job Search in the Great Recession
Chetty w13967 Moral Hazard vs. Liquidity and Optimal Unemployment Insurance
Michaillat and Saez w18826 Aggregate Demand, Idle Time, and Unemployment
Schmieder, von Wachter, and Bender w17813 The Effects of Extended Unemployment Insurance over the Business Cycle: Evidence from Regression Discontinuity Estimates Over Twenty Years
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us