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Incomplete Unemployment Insurance under Aggregate Fluctuations

Updated on 15 November 2016 Published

Citation

Algan Yann, Allais Olivier. In: Economics Bulletin, Vol. 5, No. 14, 2004, pp. 1−7.


Abstract

This paper reconsiders the welfare benefit of unemployment insurance when individuals might self−insure through private savings but face aggregate fluctuations. We conclude that previous studies have under−estimated by half the average welfare gain from unemployment benefit by ignoring aggregate price and employment uncertainty. But paradoxically enough, the poorest are less in favour of unemployment benefit when business cycles are taken into account. This result is due to favorable price effects which dominate the unemployment uncertainty.