DP12802 Benefit reentitlement conditions in unemployment insurance schemes

Author(s): Torben M Andersen, Kristoffersen, Michael Svarer
Publication Date: March 2018
Keyword(s): incentives, job-search, Reentitlement effects, Unemployment insurance
JEL(s): E32, H3, J65
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12802

The past employment history - employment requirements - is part of the eligibility conditions for unemployment insurance in most western countries. In a standard search-matching model, we show how employment requirements strengthen the reentitlement effect and thereby changes the trade-off between insurance and incentives in the design of the optimal insurance scheme. Deploying employment requirements for benefit eligibility may thus allow for both higher benefit levels and longer duration, and yet labor market performance is improved. When the need for insurance increases due to higher risk aversion, employment requirements becomes less lenient, and oppositely when the environment becomes more risky.