International Tax and Public Finance

, Volume 13, Issue 5, pp 565–585

Optimal unemployment insurance design: Time limits, monitoring, or workfare?

Authors

    • Department of EconomicsUppsala University, and IFAU
  • Bertil Holmlund
    • Department of EconomicsUppsala University
Article

DOI: 10.1007/s10797-006-6249-3

Cite this article as:
Fredriksson, P. & Holmlund, B. Int Tax Public Finan (2006) 13: 565. doi:10.1007/s10797-006-6249-3

Abstract

This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity in preferences for leisure. The analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems.

Keywords

Unemployment insuranceSearchMonitoringSanctionsWorkfare

Copyright information

© Springer Science + Business Media, LLC 2006