On the Provision of Insurance against Search‐Induced Wage Fluctuations*
| Autor: | Jean-Baptiste Michau |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
Labour economics Schedule ComputingMilieux_THECOMPUTINGPROFESSION media_common.quotation_subject 05 social sciences Wage Microeconomics Key person insurance Incentive Precautionary savings 0502 economics and business Unemployment Economics Auto insurance risk selection 050207 economics Welfare 050205 econometrics media_common |
| Zdroj: | The Scandinavian Journal of Economics. 123:382-414 |
| ISSN: | 1467-9442 0347-0520 |
| Popis: | This paper investigates the provision of insurance to workers against search-induced wage uctuations. I rely on numerical simulations of a model of on-the-job search and precautionary savings. The model is calibrated to low skilled workers in the U.S.. The extent of insurance is determined by the degree of progressivity of a non-linear transfer schedule. The fundamental trade-off is that a more generous provision of insurance reduces incentives to search for better paying jobs, which is detrimental to the production efficiency of the economy. I show that progressivity raises the search intensity of unemployed worker, which reduces the equilibrium rate of unemployment, but lowers the search intensity of employed job seekers, which results in a lower output level. I also solve numerically for the optimal non-linear transfer schedule. The optimal policy is to provide almost no insurance up to a monthly income level of $1450, such as to preserve incentives to move up the wage ladder, and full insurance above $1650. This policy halves the standard deviation of labor incomes, increases output by 2.4% and generates a consumption-equivalent welfare gain of 1.3%. Forbidding private savings does not fundamentally change the shape of the optimal transfer function, but tilts the optimal policy towards more insurance at the expense of production efficiency. |
| Databáze: | OpenAIRE |
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