Job Duration and History-Dependent Unemployment Insurance

Abstract

Unemployment insurance schemes typically include eligibility conditions comprising the employment history prior to becoming unemployed, an aspect largely neglected in the literature. We develop an analytically tractable matching model including such contingencies. Unemployed determine reservation durations for jobs to be acceptable, and stronger employment histories increase reservation durations. This creates a stratification among unemployed; unemployed with short employment histories accept short-term jobs, while those with a strong employment history aims for jobs with a longer duration. A trade-off arises between the employment level and the matching quality in terms of job duration; a stronger reward to employment histories reduces employment, but improves match quality (more long-term jobs). Numerical simulations show that the distribution between short- and long-term jobs is significantly affected by history dependencies in benefits levels and duration. The optimal utilitarian policy is shown to include contingencies based on employment histories of the unemployed.