Essays on Unemployment Policies: Dissertation Summary

In the last three decades, active labor market policies have gained a higher share of the total spending on labor policies and have received increased attention as governments seek to insure unemployed workers without damaging their incentives for becoming employed. Given that additional policy instruments such as jobsearch monitoring are available and are implemented by governments, it is important to model these instruments, to examine the extent to which these instruments increase the efficiency of unemployment insurance programs, and to compare existing policies to the optimal policy

Unemployment accounts

Unemployment Accounts (UA) are mandatory individual saving accounts that can be used by governments as an alternative to the Unemployment Insurance (UI) system. I study a two tier UA-UI system where the unemployed withdraw from their unemployment account until it is exhausted and then receive unemployment benefits. The hybrid policy provides insurance to workers more efficiently than a traditional UI because it provides government benefits selectively. Using a structural model calibrated to the US economy, I find that relative to a two tier UI system the hybrid policy leads to a welfare gain of 0.9%

Optimal Unemployment Insurance with Monitoring

Monitoring the job-search activities of unemployed workers is a common government intervention. Typically, a caseworker reviews the unemployed worker's employment contacts at some frequency, and applies sanctions if certain requirements are not met. I model monitoring in the optimal unemployment insurance framework of Hopenhayn and Nicolini (1997), where job-search effort is private information for the unemployed worker. In the model, monitoring provides costly information upon which the government conditions the unemployment benefits. In the optimal monitoring scheme, endogenous sanctions and rewards, together with random monitoring, create effective job-search incentives for the unemployed worker. I calibrate the model to the US economy and find that the addition of optimal monitoring to the optimal unemployment insurance scheme decreases the variance of consumption by about two thirds and eliminates roughly half of the government's cost. I also find that compared with the optimal monitoring scheme, US states monitor too much and impose the sanctions over too short a time span. For the US on average, shifting to the optimal monitoring policy would generate savings of about $500 per unemployment spell

Unemployment accounts

Unemployment Accounts (UA) are mandatory individual saving accounts that can be used by governments as an alternative to the Unemployment Insurance (UI) system. I study a two tier UA-UI system where the unemployed withdraw from their unemployment account until it is exhausted and then receive unemployment benefits. The hybrid policy provides insurance to workers more efficiently than a traditional UI because it provides government benefits selectively. Using a structural model calibrated to the US economy, I find that relative to a two tier UI system the hybrid policy leads to a welfare gain of 0.9%

Universal basic income: inspecting the mechanisms

We consider the aggregate and distributional impact of Universal Basic Income (UBI). We develop a model to study a wide range of UBI programs and financing schemes and to highlight the key mechanisms behind their impact. The most crucial channel is the rise in distortionary taxation (required to fund UBI) on labor force participation. Second in importance is the decline in self-insurance due to the insurance UBI provides, resulting in lower aggregate capital. Third, UBI creates a positive income effect lowering labor force participation. Alternative tax-transfer schemes mitigate the impact on labor force participation and the cost of UBI

Financial Risk and Unemployment

Abstract There is a strong correlation between the corporate interest rate (BAA rated), and its spread relative to Treasuries, and the unemployment rate. We model how interest rates and potential default rates impact equilibrium unemployment in a Diamond-Mortesen-Pissarides model. We calibrate the model using US data without targeting business cycle statistics. Volatility in the corporate interest rate can explain about 80% of the volatility of unemployment, vacancies, and market tightness. Simulating the Great Recession shows the model can account for much of the rise in unemployment. Without Fed action, unemployment would have been 6% higher. JEL Classification:E22, E24, E32, E44, J41, J63, J6

Optimal unemployment insurance with monitoring

Monitoring the job-search activities of unemployed workers is a common government intervention. Typically, a caseworker reviews the unemployed worker's employment contacts at some frequency, and applies sanctions if certain requirements are not met. I model monitoring in the optimal unemployment insurance framework of Hopenhayn and Nicolini (1997), where job-search effort is private information for the unemployed worker. In the model, monitoring provides costly information upon which the government conditions the unemployment benefits. In the optimal monitoring scheme, endogenous sanctions and rewards, together with random monitoring, create effective job-search incentives for the unemployed worker. I calibrate the model to the US economy and find that the addition of optimal monitoring to the optimal unemployment insurance scheme decreases the variance of consumption by about two thirds and eliminates roughly half of the government's cost. I also find that compared with the optimal monitoring scheme, US states monitor too much and impose the sanctions over too short a time span. For the US on average, shifting to the optimal monitoring policy would generate savings of about $500 per unemployment spell

Optimal Unemployment Insurance with Monitoring

Monitoring the job-search activities of unemployed workers is a common gov- ernment intervention. I model monitoring in the optimal unemployment insurance framework of Hopenhayn and Nicolini (1997), where job-search e¤ort is private in- formation for the unemployed worker. In the model, monitoring provides costly imperfect information upon which the government conditions the unemployment benets. In the optimal monitoring scheme, random monitoring, together with endogenous sanctions and rewards, create e¤ective job-search incentives for the un- employed worker. For CRRA utility, the monitoring frequency increases and the spreads decrease with promised utility, if and only if the coe¢ cient of risk aver- sion is greater than 1 2 . Compared to optimal unemployment insurance, monitoring saves, at the balanced budget point, about eighty percent of the cost associated with moral hazard. The gain is achieved by a decrease of more than half in the standard deviation of consumption

Unemployment Accounts

Unemployment Accounts (UA) are mandatory individual saving accounts that can be used by governments as an alternative to the Unemployment Insurance (UI) system. The goal of this paper is to study the welfare implications of a shift from the current UI system to a new UA system in the United States. The UA system works as follows. During employment, the worker is mandated to make deposits into the individual saving account. The worker is entitled to withdraw payments from this account only during unemployment. In contrast, UI is funded by a payroll tax and provides benefits for a limited duration. I build an heterogeneous agents, incomplete-markets life-cycle model, in which workers face income fluctuations and unemployment shocks. UI is modeled as a choice of a replacement rate, and a time limit of unemployment benefits. UA is modeled as a choice of a deposit rate into the account during employment and a withdrawal rate during unemployment. Qualitatively, a shift from UI to UA can lead to either a welfare gain or a welfare loss depending on the role of frictions and incentives in the model. This observation puts the paper at the nexus of the macroeconomic debate on the level of disutility from work. Quantitatively, for a plausible parameterization the shift from UI to UA leads to an average welfare gain of 0.9% of lifetime consumption

Optimal Unemployment Insurance with Monitoring

I study a principal-agent problem in which the principal can obtain additional costly information about the agent’s effort. I analyze this problem in the context of optimal unemployment insurance a la Hopenhayn and Nicolini (1997), where job-search effort is private information. I calibrate the model to the US economy and use it for two purposes. First, I show that for CRRA utility, the optimal contract dictates that monitoring frequency increases and the sanction decreases with promised utility, if and only if the coeffi cient of risk aversion is greater than 0.5. Second, I show that compared to optimal unemployment insurance and estimated at the balanced budget point, monitoring saves about eighty percent of the cost associated with moral hazard