Macroeconomic Determinants of Equilibrium Unemployment Insurance

Abstract

This paper proposes a new modeling strategy as regards the definition of an optimal level of unemployment benefits. While the traditional methodology privileges labor market equilibrium to derive optimal employment, wage and unemployment benefit levels, we present a model in which the optimal level of unemployment benefits is a function of the government's macroeconomic objectives in terms of inflation and output fluctuations. In a second stage, the model allows for the investigation of unemployment insurance effects on labor market equilibrium.

Keywords: Macroeconomic Constraints, Unemployment Insurance, Collective Bargaining, Trade Union Objectives

JEL Classification: H30, J33, J51