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Incomplete Unemployment Insurance under Aggregate Fluctuations

Author

Listed:
  • Yann Algan

    (EUREQua, IZA, Université Marne-la-Vallée)

  • Olivier Allais

    (INRA - CORELA)

Abstract
This paper reconsiders the welfare benefit of unemployment insurance when individuals might self-insure through private savings but face aggregate fluctuations. We conclude that previous studies have under-estimated by half the average welfare gain from unemployment benefit by ignoring aggregate price and employment uncertainty. But paradoxically enough, the poorest are less in favour of unemployment benefit when business cycles are taken into account. This result is due to favorable price effects which dominate the unemployment uncertainty.

Suggested Citation

  • Yann Algan & Olivier Allais, 2004. "Incomplete Unemployment Insurance under Aggregate Fluctuations," Economics Bulletin, AccessEcon, vol. 5(14), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-04e30007
    as

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    File URL: http://www.accessecon.com/pubs/EB/2004/Volume5/EB-04E30007A.pdf
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    References listed on IDEAS

    as
    1. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    2. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    3. Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 2001. "The welfare cost of business cycles revisited: Finite lives and cyclical variation in idiosyncratic risk," European Economic Review, Elsevier, vol. 45(7), pages 1311-1339.
    4. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    5. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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