Working Paper: CEPR ID: DP12802
Authors: Torben M. Andersen; Mark Strøm Kristoffersen; Michael Svarer
Abstract: The past employment history - employment requirements - is part of the eligibility conditions for unemployment insurance in most western countries. In a standard search-matching model, we show how employment requirements strengthen the reentitlement effect and thereby changes the trade-off between insurance and incentives in the design of the optimal insurance scheme. Deploying employment requirements for benefit eligibility may thus allow for both higher benefit levels and longer duration, and yet labor market performance is improved. When the need for insurance increases due to higher risk aversion, employment requirements becomes less lenient, and oppositely when the environment becomes more risky.
Keywords: Reentitlement effects; Incentives; Job search; Unemployment insurance
JEL Codes: E32; H3; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employment requirements (J23) | reentitlement effect (H55) |
| reentitlement effect (H55) | job search incentives (J68) |
| Employment requirements (J23) | job search incentives (J68) |
| Higher risk aversion (D81) | stricter employment requirements (J68) |
| stricter employment requirements (J68) | job search incentives (J68) |
| Design of unemployment insurance schemes (J65) | distribution of benefits (D39) |