A Macroeconomic Approach to Optimal Unemployment Insurance : Theory and Applications

  title={A Macroeconomic Approach to Optimal Unemployment Insurance : Theory and Applications},
  author={Camille Landais and Pascal Michaillat and Emmanuel Saez},
This paper develops a theory of optimal unemployment insurance (UI) in matching models. The optimal UI replacement rate is the conventional Baily-Chetty replacement rate, which solves the tradeoff between insurance and job-search incentives, plus a correction term, which is positive when an increase in UI pushes the labor market tightness toward its efficient level. In matching models most wage mechanisms do not ensure efficiency so tightness is generally inefficient. The effect of UI on… CONTINUE READING


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