DP14786 The Safety Net as a Springboard? A General Equilibrium based Policy Evaluation

Author(s): Domenico Ferraro, Nir Jaimovich, Francesca Molinari, Cristobal Young
Publication Date: May 2020
Date Revised: September 2020
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JEL(s):
Programme Areas: Labour Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14786

We develop a search-and-matching model where the magnitude of unemployment insurance benefits affects the likelihood that unemployed actually engage in active job search. To quan- titively discipline this relation we use administrative data of unemployed search audits. We use the model to quantify the effects of unemployment reforms. For small benefits' increases, the policymaker faces a trade-off between an uptick in the measure of unemployed actually searching and a fall in the unemployment exit-rate conditional on searching. For larger bene- fits' increases, an active search margin magnifies the benefits' disincentives, leading to a bigger drop in the employment rate than previously thought.