Asset-based Unemployment Insurance

Pontus Rendahl*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This article studies a model of consumption, savings, and job search in which a borrowing constraint limits self-insurance. The government administers the unemployment insurance program that may condition on an individual's asset position, but not on her efforts of finding a job. To compensate for the impediments to self-insurance, benefit payments should optimally be set higher at lower wealth levels and peak for borrowing-constrained individuals with zero liquid funds. A quantitative exercise reveals that the U.S. unemployment insurance program is surprisingly close to optimal for the asset poor, but far too generous for wealthier individuals.

Original languageEnglish
JournalInternational Economic Review
Volume53
Issue number3
Pages (from-to)743-770
Number of pages28
ISSN0020-6598
DOIs
Publication statusPublished - Aug 2012
Externally publishedYes

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