Liquidity and Insurance for the Unemployed / Robert Shimer, Ivan Werning.

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Shimer, Robert

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11689.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w11689 (Browse shelf(Opens below))	Not For Loan

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October 2005.

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.