Should Unemployment Insurance Vary With the Unemployment Rate ? Theory and Evidence

@inproceedings{Krueger2013ShouldUI,
  title={Should Unemployment Insurance Vary With the Unemployment Rate ? Theory and Evidence},
  author={As Alan Krueger and Bruce C Meyer},
  year={2013}
}
We study theoretically and empirically how optimal unemployment insurance (UI) benefits vary over the business cycle. Theoretically, we characterize how the moral hazard cost and the consumption smoothing benefit of UI vary over the business cycle in a standard job search model. This analysis motivates our empirical strategy which tests whether the effect of UI on unemployment durations and the consumption drop at unemployment varies with the unemployment rate. In our preferred specification… CONTINUE READING