nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒11‒20
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Unemployment Insurance over the Business Cycle By Camille Landais; Pascal Michaillat; Emmanuel Saez
  2. La couverture du risque chômage au regard de la situation familiale By Charlot Olivier; Decreuse Bruno
  3. A Defense of the Current US Tax Treatment of Employer-Provided Medical Insurance By Kevin X. D. Huang; Gregory W. Huffman

  1. By: Camille Landais; Pascal Michaillat; Emmanuel Saez
    Abstract: This paper analyzes optimal unemployment insurance over the business cycle in a search model in which unemployment stems from matching frictions (in booms) and job rationing (in recessions). Job rationing during recessions introduces two novel effects ignored in previous studies of optimal unemployment insurance. First, job-search efforts have little effect on aggregate unemployment because the number of jobs available is limited, independently of matching frictions. Second, while job-search efforts increase the individual probability of finding a job, they create a negative externality by reducing other jobseekers’ probability of finding one of the few available jobs. Both effects are captured by the positive and countercyclical wedge between micro-elasticity and macro-elasticity of unemployment with respect to net rewards from work. We derive a simple optimal unemployment insurance formula expressed in terms of those two elasticities and risk aversion. The formula coincides with the classical Baily-Chetty formula only when unemployment is low, and macro- and micro-elasticity are (almost) equal. The formula implies that the generosity of unemployment insurance should be countercyclical. We illustrate this result by simulating the optimal unemployment insurance over the business cycle in a dynamic stochastic general equilibrium model calibrated with US data.
    JEL: E24 E32 H21 H23
    Date: 2010–11
  2. By: Charlot Olivier; Decreuse Bruno (Universite de Cergy-Pontoise, THEMA, F-95000 Cergy-Pontoise.; Universite de la Mediterranee, GREQAM et IDEP. GREQAM, 2, rue de la charite, 13236 Marseille cedex 02.)
    Abstract: This article surveys the literature studying the links between unemployment and the family. First, we focus on the interactions between familiy status and un- employment risks. Being in a couple rather than single, as the number of children influence unemployment duration. In turn, unemployment impacts couple forma- tion and dissolution, as the decision to have children and the timing of births. We then investigate the mutual insurance role against labour income risks played by the spouses. We insist on the limited insurance provided by the spouses due to limited commitment, and the particularly high default risk in bad times for the couple. The latter risk is all the more important than unemployment alters bargaining powers inside the couple. Finally, this leads us to investigate the institutional framework aimed at protecting individuals/families against labour market hazards (Unemploy- ment Insurance and Employment Protection Legislation) and its interactions with the family. It turns out that many countries provide more Employment Protection to those having a family. However, Unemployment Insurance depends very little on family status, once taxes and transfers are taken into account.
    Keywords: Unemployment Insurance; Employment Protection Legislation; Economics of the family
    JEL: D10 J12 J21 J60
    Date: 2010
  3. By: Kevin X. D. Huang (Department of Economics, Vanderbilt University); Gregory W. Huffman (Department of Economics, Vanderbilt University)
    Abstract: The US tax system currently provides an incentive for individuals to obtain medical insurance through their employers. This feature introduces a distortion which encourages households consume more medical services than they otherwise would, and likely results in the medical consumption taking up 17 percent total consumption, which is much higher than in other advanced economies. This unusual and unique tax treatment is widely excoriated as resulting in high costs and distorting consumption decisions. This paper presents a simple general equilibrium model to compare the outcomes for different systems for the provision of medical services. It is shown that the current tax system may be superior to an identical system in which the tax subsidy is absent. It also is shown that eliminating the tax subsidy for employer-provided medical insurance results in higher unemployment, lower output, and lower welfare. Furthermore, having the government raise taxes to finance the provision of medical care results in substantial decreases in employment, output and welfare.
    Keywords: Tax, employment, medical benefit, welfare
    JEL: E2 E6 H2 H3 I1
    Date: 2010–02

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