Center for Economic Research, Department of Economics, University of Minnesota
This paper develops a model of a firm's optimizing behavior
under the existence of the U.S. Unemployment Insurance System. The
relationships among changes in employment and output fluctuations in
response to shocks in the demand for output are highlighted. The
production function of the model incorporates the training costs of
new hires. Two effects of the Unemployment Insurance System on the
dynamics of employment are considered: The firm keeps a labor force
pool of workers for possible recall, since the unemployment benefits
increase the reservation wage and therefore decrease the probability
of workers getting an acceptable job offer. The benefits paid to the
workers who are laid off are charged to the firm's account and this
may increase the tax rate on the Unemployment Insurance Tax paid by
the firm. The effects of different tax structures on the transition
equations for the state variables and on the dynamic paths of the
firm's control variables are investigated with simulations of the
model. The steady state solution of a simplified version of the model
with oscillatory demand is analyzed. Empirical and theoretical
implications are also discussed.
Peris, J.A., (1982), "A Dynamic Model if the Cyclical Behavior of Employment with Unemployment Insurance", Discussion Paper No. 170, Center for Economic Research, Department of Economics, University of Minnesota.
Peris, Jose Antonio.
A Dynamic Model if the Cyclical Behavior of Employment with Unemployment Insurance.
Center for Economic Research, Department of Economics, University of Minnesota.
Retrieved from the University of Minnesota Digital Conservancy,
Content distributed via the University of Minnesota's Digital Conservancy may be subject to additional license and use restrictions applied by the depositor.