Three Essays on Unemployment, Self-selection and Wage Differentials

Download or read book Three Essays on Unemployment, Self-selection and Wage Differentials written by Tal Regev (Ph. D.) and published by . This book was released on 2006 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: (Cont.) The government's capacity to insure workers is limited by the market wage setting, which gives workers a share in the employment surplus. When the government provides higher unemployment benefits, the bargained wages increase, and unemployment rises. These equilibrium responses have a negative effect on workers' welfare if workers' bargaining power is above a certain point, which is lower than the matching elasticity. As risk aversion increases, workers' share in the wage bargain is smaller, and thus the equilibrium effects are attenuated. The constrained optimal provision of unemployment benefits is a modification of the Hosios condition for efficient unemployment insurance and highlights the roles of bargaining and risk aversion. The optimal level of insurance increases with risk aversion, with the costs of creating a vacancy and with workers' higher bargaining power.