Unemployment Insurance and the Role of Self-Insurance
This paper employs a dynamic general equilibrium model to design
and evaluate long-term unemployment insurance plans (plans that depend on
workers' unemployment history) in economies with and without hidden
savings. We show that optimal benefit schemes and welfare implications
differ considerably in these two economies. Switching to long-term plans
can improve welfare significantly in the absence of hidden savings.
However, wefare gains are much lower when we consider hidden savings.
Therefore, we argue that switching to long term plans should not be a
primary concern from a policy point of view.