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 GSE Research Recognition Program