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Optimal unemployment policy in a matching equilibrium

Coles, M (2008) 'Optimal unemployment policy in a matching equilibrium.' Labour Economics, 15 (4). 537 - 559. ISSN 0927-5371

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This paper considers optimal unemployment policy in a matching equilibrium with risk averse workers and unobserved job search effort. The Planner chooses unemployment benefits, taxes and job creation subsidies to maximise a Utilitarian welfare function. Optimal policy involves a trade-off between higher employment taxes (which finance more generous unemployment benefits) and greater market tightness (which reduces the average unemployment spell). Optimal UI implies the initial UI payment equals the wage, thus ensuring consumption is smooth across the job destruction shock, and UI payments then fall with duration. © 2008 Elsevier B.V. All rights reserved.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 05 Jan 2013 16:41
Last Modified: 08 Jul 2019 10:15

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