Munich Personal RePEc Archive

A Dichotomous Analysis Of Unemployment Welfare

Hu, Xingwei (2018): A Dichotomous Analysis Of Unemployment Welfare.

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Abstract

In an economy which could not accommodate full employment of its labor force, it employs some but does not employ others. The bipartition of the labor force is random, and we characterize it by a probability distribution with equal employment opportunity. We value each employed individual by his marginal contribution to the production; we also value each unemployed individual by the potential marginal contribution he would make if the market hired him. We fully honor both the individual value and its national aggregate in our distribution of the net production to the unemployment welfare and the employment benefits. Using a balanced budget rule of taxation, we derive a fair, debt-free, and risk-free tax rate for any given unemployment rate. The tax rate minimizes both the asymptotic mean and variance of the underlying posterior unemployment rate; it also stimulates employment, boosts productivity, and mitigates income inequality. One could also apply the rate and valuation approach to areas other than the labor market. This framework is open to alternative identification strategies and other forms of equal opportunity.

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