Unemployment Insurance with Hidden Savings

This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini [4]. The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment.hidden savings, hidden wealth, repeated moral hazard, unemployment insurance.

Unemployment Insurance with Hidden Savings

This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini [4]. The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment

Unemployment insurance and the role of self-insurance

This paper employs a dynamic general equilibrium model to design and evaluate long-term unemployment insurance plans (plans that depend on workers' unemployment history) in economies with and without hidden savings. We show that optimal benefit schemes and welfare implications differ considerably in these two economies. Switching to long-term plans can improve welfare significantly in the absence of hidden savings. However, welfare gains are much lower when we consider hidden savings. Therefore, we argue that switching to long-term plans should not be a primary concern from a policy point of view

Liquidity and Insurance for the Unemployed

We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, a very simple policy is optimal: a constant benefit during unemployment, a constant tax during employment, and free access to savings using the riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the optimal policy involves nearly constant benefits and the welfare gains from more elaborate policies are minuscule. Our results highlight two distinct roles for policy toward the unemployed: ensuring workers have sufficient liquidity to smooth their consumption; and providing unemployment subsidies that serve as insurance against the uncertain duration of unemployment spells.

In This Together: The Hidden Cost of Young Adult Unemployment

At a time when young people are facing a mountain of new challenges in college, the labor market, and the home, this report, lays clear how much the failure to provide young people with good jobs is costing America's economy and the public each year at the federal and state level. The findings are staggering: severely high youth unemployment costs $9 billion in tax revenue each year. This report is a call to action for the national public, and the message shouldn't be taken lightly. How we tackle the problems facing today's youth has enormous implications for what the rest of the 21st century will look like in the U.S. Their policy proposals represent the opening of a national dialogue about how to address our current youth employment crisis. at the federal and state level

THE INTERACTION BETWEEN UNEMPLOYMENT INSURANCE AND HUMAN CAPITAL POLICIES

In the presence of an optimally designed unemployment bene.t system we show that it is optimal for the government to encourage human capital acquisition. The driving force of this result is the complementarity between human capital and labor-market- oriented behavior. If policy includes inter-temporal transfers, the optimal level of investment in human capital is given at the point where, at the margin, expected return to human capital is identical to the risk free rate even though there is no full insurance at the optimum.

Liquidity and insurance for the unemployed

We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, it is optimal to use a very simple policy: a constant benefit during unemployment, a constant tax during employment that does not depend on the duration of the spell, and free access to savings using a riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the welfare gains of more elaborate policies are minuscule. Our results highlight two largely distinct roles for policy toward the unemployed: (a) ensuring workers have sufficient liquidity to smooth their consumption; and (b) providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells.Insurance

Should UI Benefits Really Fall over Time?

The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in an analytically tractable model allowing moral hazard, adverse selection and hidden savings. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden savings. In general, adverse selection problems calls for increasing benefits, moral hazard problems for constant benefits and decreasing search productivity for decreasing benefits.unemployment benefits, search, moral hazard, adverse selection