Working Paper: NBER ID: w0424
Authors: Herschel I. Grossman
Abstract: This paper develops an analysis of labor markets in which the use of layoffs to effect employment separations does not imply that markets fail to clear or that the amount of employment is suboptimal relative to current perceptions. This analysis focuses on the interaction between contractual arrangements for shifting risk from workers to employers and tax-financed unemployment insurance. The key element in the analysis is that unemployment insurance is more attractive than risk shifting as a way for workers to obtain income during unemployment. The paper also analyses the effects of risk shifting and unemployment insurance on the magnitude of employment fluctuations. The analysis implies that, given the existence of unemployment insurance, the existence of risk-shifting arrangements makes employment less variable.
Keywords: unemployment insurance; layoffs; risk shifting
JEL Codes: J63; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Risk Shifting (H22) | Employment Variability (J63) |
| Unemployment Insurance (J65) | Risk Shifting (H22) |
| Unemployment Insurance + Risk Shifting (J65) | Employment Variability (J63) |