Working Paper: NBER ID: w7352
Authors: Daron Acemoglu; Robert Shimer
Abstract: This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the standard moral hazard effects of unemployment insurance. Our model economy captures the behavior of the U.S. labor market for high school graduates quite well. When unemployment insurance becomes more generous starting from the current U.S. levels, there is an increase in unemployment similar in magnitude to the micro-estimates, but because the composition of jobs also changes, total output and welfare increase as well.
Keywords: unemployment insurance; labor productivity; general equilibrium model
JEL Codes: E24; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased generosity of UI (J65) | higher labor productivity (J24) |
| increased generosity of UI (J65) | likelihood of workers applying for higher productivity jobs (J24) |
| higher labor productivity (J24) | overall increase in output and welfare (D69) |
| decrease in UI generosity (J65) | decrease in welfare (I38) |
| decrease in UI generosity (J65) | decrease in output (E23) |
| increased UI (J65) | higher unemployment duration (J64) |
| increased UI (J65) | beneficial effects on job market efficiency (J68) |
| moderate increase in UI (J65) | raise average wages significantly (J31) |