Job Duration and History Dependent Unemployment Insurance

48 Pages Posted: 25 Jul 2017

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Christian Ellermann-Aarslev

Danish Central Bank

Date Written: July 2017

Abstract

Unemployment insurance schemes typically include eligibility conditions depending on the employment history of the unemployed. The literature on the design of unemployment insurance schemes has largely ignored this aspect, perhaps due to the implied history dependence and heterogeneity across otherwise identical workers. We develop an analytically tractable matching model permitting an analysis of the consequences of such history dependencies. Unemployed determine reservation durations to the jobs they find acceptable, and the stronger employment histories lead to higher reservation durations. Consequently, short-term jobs are only acceptable to unemployed with a weak employment history, while unemployed with a stronger employment history have higher reservation durations. This affects the equilibrium distribution of employment according to job durations; fewer short duration jobs are filled, but this also means that fewer are locked-into such jobs, and therefore more jobs with long durations are filled, although the net effect generally is to lower employment. Employment history contingencies this affect both the level and structure of employment. Equilibrium (un)employment depends not only on reservation durations, and a longer benefit duration combined with a decrease in the benefit level to retain reservation durations has a negative effect on employment.

Keywords: Employment conditions, Employment history, job search, Unemployment insurance

JEL Classification: E24, J64, J65

Suggested Citation

Andersen, Torben M. and Ellermann-Aarslev, Christian, Job Duration and History Dependent Unemployment Insurance (July 2017). CEPR Discussion Paper No. DP12163, Available at SSRN: https://ssrn.com/abstract=3008345

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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DK-8000 Aarhus C
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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Christian Ellermann-Aarslev

Danish Central Bank ( email )

Denmark

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