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Unemployment insurance and the role of self-insurance

Abdulkadiroglu, Atila; Kuruscu, Burhanettin; Sahin, Aysegul

This paper employs a dynamic general equilibrium model to design and evaluate long-term unemployment insurance plans (plans that depend on workers' unemployment history) in economies with and without hidden savings. We show that optimal benefit schemes and welfare implications differ considerably in these two economies. Switching to long-term plans can improve welfare significantly in the absence of hidden savings. However, welfare gains are much lower when we consider hidden savings. Therefore, we argue that switching to long-term plans should not be a primary concern from a policy point of view.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0102-27
Published Here
March 22, 2011

Notes

March 2002

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