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- Title
EMPLOYMENT RISK AND THE SUBSTITUTION BETWEEN SAVING AND UNEMPLOYMENT INSURANCE.
- Authors
KIM, ILTAE
- Abstract
This paper re-examines the comparative statics effects of increases in both the lump-sum and proportional components of an unemployment-insurance benefit on saving and labor supply. We analyze a two-period model of labor supply and saving that incorporates a known probability of being unemployed in the future. We show that, given risk aversion and the normality of leisure, the effects of increases in the lump-sum component on saving and labor supply are both negative. In the case of an increase in the replacement ratio, the relationship between unemployment insurance and saving depends on the weighted degree of absolute risk aversion, given risk aversion and the normality of leisure.
- Subjects
UNEMPLOYMENT; RISK aversion; UNEMPLOYMENT insurance; SUPPLEMENTAL unemployment benefits; LABOR supply; LEISURE
- Publication
Manchester School (1463-6786), 2006, Vol 74, Issue 5, p617
- ISSN
1463-6786
- Publication type
Article
- DOI
10.1111/j.1467-9957.2006.00513.x