Working Paper: CEPR ID: DP3082
Authors: Jan Boone; Peter Fredriksson; Bertil Holmlund; Jan C. van Ours
Abstract: This Paper analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient. We find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs; this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt. The optimal sanction rates implied by our calibrated model are much higher than the sanction rates typically observed in European labour markets
Keywords: sanctions; search; unemployment insurance
JEL Codes: J64; J65; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monitoring and sanctions (P37) | welfare improvement (I38) |
| monitoring and sanctions (P37) | search effort (C90) |
| benefit sanctions (J32) | transition rate from unemployment to employment (J68) |
| monitoring and sanctions (P37) | optimal sanction rates (K42) |
| indefinite benefits and time limits (H53) | welfare improvement through monitoring and sanctions (I38) |
| high penalty (Z28) | welfare losses (D69) |