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Employment Insurance Differentiation over the Business Cycle

Pollak, Andreas (2018): Employment Insurance Differentiation over the Business Cycle.

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Abstract

This paper quantitatively investigates the welfare implications of varying unemployment insurance (UI) generosity with labour market conditions, in particular over the business cycle. Using a life-cycle model with two-sided matching in the labour market, which is calibrated to match the Canadian economy, I conduct policy experiments that qualitatively confirm results from the theoretical literature that differentiation of UI generosity over the business cycle improves welfare by providing better insurance in times when labour market conditions are difficult. However, I show that quantitatively, the welfare improvements possible though optimal benefit differentiation are very small for UI systems that are reasonably efficient to start with.

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