Social Insurance and Transition
NBER Working Paper No. 4411
We study the general equilibrium effects of social insurance on the transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty. We find that adding social insurance may slow transition. When there are incentive problems in this rematching process, the optimal social insurance scheme may involve forced layoffs and involuntary unemployment.
Published: International Economic Review. May 1996, vol. 37, no. 2.