Unemployment Insurance and Experience Rating in a Simple Model of Involuntary Unemployment

Managing unemployment is one of the key issues in social policies. Unemployment insurance schemes are designed to cushion the financial and morale blow of loss of job but also to encourage the unemployed to seek new jobs more proactively due to the continuous reduction of benefit payments. In the present paper, a simple model of unemployment insurance is proposed with a focus on optimality of the individual’s entry to the scheme. The corresponding optimal stopping problem is solved, and its similarity and differences with the perpetual American call option are discussed. Beyond a purely financial point of view, we argue that in the actuarial context the optimal decisions should take into account other possible preferences through a suitable utility function. Some examples in this direction are worked out.

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Subsidizing versus Experience Rating of Unemployment Insurance in Unionized Labor Markets

FinanzArchiv Public Finance Analysis ◽

10.1628/0015221041525796 ◽

2004 ◽

Vol 60 (2) ◽

pp. 186 ◽

Cited By ~ 2

Keyword(s):

Labor Markets ◽

Unemployment Insurance ◽

Experience Rating

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How do Unemployment Insurance and Recall Expectations Affect on-the-job Search among Workers Who Receive Advance Notice of Layoff?

ILR Review ◽

10.1177/001979399805100205 ◽

1998 ◽

Vol 51 (2) ◽

pp. 241-252 ◽

Cited By ~ 8

Author(s):

Paul L. Burgess ◽

Stuart A. Low

Keyword(s):

Random Sample ◽

Unemployment Insurance ◽

Job Search ◽

Experience Rating ◽

Advance Notice ◽

Unemployment Spells

This paper explores how advance notice of layoffs, recall (rehiring) expectations, and unemployment insurance (UI) benefits affected on-the-job search among a random sample of Arizona UI recipients in 1975–76. The analysis, which includes extensive controls for the characteristics of workers and their jobs, indicates that pre-unemployment search increased with length of notice and decreased with expected recall. Also, among workers not expecting recall, pre-unemployment search decreased with the level of UI benefits available after layoff. The authors argue that improved experience rating would encourage firms to give employees advance notice when layoffs are imminent, and re-employment bonuses for workers with zero or short unemployment spells would encourage early search.

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