Working Paper: CEPR ID: DP5967
Authors: Holger Strulik; Jean-Robert Tyran; Paolo Vanini
Abstract: We develop a simple model of short- and long-term unemployment to study how labour market institutions interact with labour market conditions and personal characteristics of the unemployed. We analyze how the decision to exit unemployment and to mitigate human capital degradation by retraining depends on education, skill degradation, age, labour market tightness, taxes, unemployment insurance benefits and welfare assistance. We extend our analysis by allowing for time-inconsistent choices and demonstrate the possibility of an unemployment trap.
Keywords: present-biased preferences; retraining; skill degradation; unemployment; unemployment benefits; welfare assistance
JEL Codes: J31; J38; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| generous unemployment benefits (J65) | short-term unemployment (J64) |
| generous unemployment benefits (J65) | long-term unemployment (J64) |
| increase in duration of unemployment benefits (J65) | long-term unemployment (J64) |
| higher welfare assistance (I38) | long-term unemployment (J64) |
| higher labor income taxes (H31) | short-term unemployment (J64) |
| higher labor income taxes (H31) | long-term unemployment (J64) |