Worker Turnover and Unemployment Insurance

Recognition Program

Authors: Sekyu Choi and Javier Fernández-Blanco

International Economic Review, Vol. 59, No 4, 1837-1876, November, 2018

This article studies a competitive search model of the labor market with learning about match-specific productivity in which risk-averse workers factor present and future unemployment risks in their search decisions. We examine internally efficient equilibrium allocations in which match termination occurs only if the joint value of a worker–firm pair is negative. Internal efficiency poses a trade-off between present and future risks. Public insurance provision also affects this trade-off and, hence, worker turnover and job composition. In addition to unemployment benefits, the implementation of the planner's allocation requires a negative income tax and a 0 layoff tax. © (2018) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

This paper is acknowledged by the Barcelona School of Economics Recognition Program