If You Lost Your Job ... - In Brief

Steady as she goes

Intuition and conventional economic models suggest that unemployment benefits should decline over time to induce unemployed workers to seek jobs.

New work by Robert Shimer of the University of Chicago and Iván Werning of Massachusetts Institute of Technology upends this perspective by showing that benefits should instead remain constant, as long as workers can borrow and save.

In related research, they find that post-tax reservation wages—the lowest take-home pay that will induce workers to work—are a perfect summary for utility provided by unemployment insurance. Empirical research is needed to determine whether this means current U.S. benefit levels are optimal.

If You Lost Your Job ... [complete article]