Browsing by Subject "Unemployment Insurance"
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Item Essays on Labor Market Frictions and Institutions(2016-06) Xie, LeiyuThe U.S. government makes unemployment insurance (UI) more generous during recessions. In this thesis I study the interaction between unemployment insurance policies and labor market dynamics in a macroeconomic context. The first chapter examines government commitment and its role in shaping the dynamics of optimal UI over the business cycle. The second chapter proposes a quantitative theory featuring time-consistent policy to rationalize the increased generosity of UI benefit duration during recessions. The final chapter explores the link between allowing unemployed workers to keep uncollected UI benefits and future job-search incentives.Item Essays on Optimal Policy without Commitment(2015-07) Pei, YunMy dissertation consists of two chapters. The common theme that unifies these chapters is the determination of optimal government policy when the government cannot commit. In the first chapter, I investigate why sovereign defaults are often accompanied by significant declines in economic aggregates, and what determines the decisions of the governments to default on their debts. I develop a model of domestic default in a production economy with financial frictions. The government finances exogenous spending with distorting taxes on labor and by issuing debt. I assume that the government cannot commit to repay its debt and characterize optimal government policies in a Markov equilibrium. A key feature of the model is that government bonds are used as collateral. Hence, defaulting on debt tightens firms' collateral constraints, thereby inducing firms to reduce their demand for labor and cut back on production. This fall in output implies defaulting on debt is costly for the government. The government trades off these costs against the distortions from taxes needed to repay the debt. Defaults occur when the costs of distorting taxes of repaying the debt outweighs the costs of output loss following default. I find that the government is more likely to default if the economy encounters a large negative TFP shock after a sequence of positive shocks. The reason is that in response to positive TFP shocks, firms increase investment and build up a high level of capital stock. If the economy is then hit with a negative shock, the collateral level is relatively high, so the cost of defaulting is lower. I calibrate the model separately to Argentine and Italian data. In the model, Argentina sustains a lower debt level with high default rate while Italy sustains a higher debt level with negligible default rate. This finding is due to the fact that the TFP process in Argentina is much more volatile, which induces its government to default more often. Furthermore, the model successfully captures the declines in output and investment associated with defaults. Output drops around 10% during defaults in the Argentine version of my model, which is close to the data; while in a counterfactual analysis, output decreases around 5% if Italy defaults. In the second chapter, joint with Zoe Leiyu Xie, we characterize a Markov perfect equilibrium in a stochastic general equilibrium search model, where a benevolent government without commitment makes unemployment insurance policy. The policy is time consistent, as opposed to the optimal policy implemented by a Ramsey government. We contrast the Markov policy with the optimal policy. In the steady state, the Markov policy is associated with higher benefits and higher unemployment than the optimal policy. In response to a fall in productivity, the optimal policy rises on impact and then falls significantly below the steady state. In contrast, the Markov policy starts below the steady state and increases monotonically as the economy recovers. Compared to the optimal policy, the Markov policy leads to a slower recovery of unemployment. The reason behind the differences is the lack of commitment by the Markov government. The comparison highlights that with government commitment, unemployment insurance policy leads to a faster recovery of unemployment during recession. This paper thus offers a theory for why the government increases the generosity of unemployment insurance during a recession, and how such policies contribute to slow recovery in unemployment.Item Essays on Policies in Labor and Urban Economics(2022-05) Kass, TobeyThis dissertation consists of three chapters. In the first chapter, I document evidence of search and matching frictions in the rental housing market and study how these frictions impact the costs and benefits of income-based and rent-based housing subsidies. When subsides are income-based (like in the U.S.), recipients pay a fixed percentage of their income towards housing, and the subsidy covers the remaining cost. Rent-based subsidies are instead calculated as a percentage of the contract rent. I develop a directed search model of the rental housing market and analyze the equilibrium effects of each type of subsidy. I find that income-based subsidies distort households' search behavior more than when subsidies are rent-based. In addition, under rent-based subsidies, higher matching frictions increase costs for both the households and the subsidy provider. On the other hand, when subsidies are based on income, households bear most of the additional costs of increased matching frictions. In the second chapter, I study what motivates individuals' decisions to engage in contingent work or traditional employment and I document the characteristics of these two labor markets. Contingent work includes independent contracting, freelance work, consulting, gig work, temporary agency work, and on-call work. I show that there is greater dispersion in hours worked by contingent workers than by traditional employees. In addition, contingent workers' annual income is lower by 33 percent, their hourly wages are lower by 11 percent, and their job spells are on average 11 weeks shorter than those of traditional employees. Finally, in the third chapter, I study how the availability of contingent work affects the need for unemployment insurance. I develop a novel model of how individuals and firms choose contingent work or traditional employment. Contingent work offers hours flexibility to individuals but traditional employment earns a higher wage in equilibrium and has the security of unemployment insurance (UI). Firms hire traditional employees before observing their TFP and must pay administrative costs to hire or fire them. They can hire (less productive) contingent workers flexibly without these constraints. I show that the recent development of apps (such as Upwork) that make contingent work easy to find lowered the optimal UI replacement rate for traditional employees from 48 percent to 41 percent, which shows that contingent work provides valuable insurance to all workers in the economy. I also analyze a recent policy change that extended UI to contingent workers. This policy generates welfare losses of 0.08 percent when the UI programs are funded by separate tax rates.Funding both UI programs together with a single tax generates welfare gains of 0.09 percent.