This book examines unemployment insurance policy through a survey, taking stock of the theoretical work in the field of labor economics. It closely follows and assesses developments in the modelling of optimal unemployment insurance (UI) policies, beginning with the initial analytical findings produced in the second half of the 1970s. A main part of the survey is devoted to the two basic strands of analysis about, respectively, the optimal level of UI benefits and the optimal time profile of UI policy. The book has two different objectives. The first is to provide an essential summary of the individual models, with the intention of underscoring how a number of specific messages for the policy-maker can be derived from analytical constructions. It further emphasizes and comments on what the models deliver to UI policy-makers. The second objective is to stress the importance and extension of open questions in the field of the theoretical approach to the unemployment insurance issue. The survey discusses the multiplicity of heterogeneities of the labor world in particular as relevant for UI issues on the one side, and on the other hand, the independence of the two basic choices of UI policy, its meaning and its limits, and the possible forms of complementarity between these choices. The book is a must-read for researchers, students, and policy-makers interested in a better understanding of the field of labor economics in general, as well as unemployment insurance policies in particular.

Designing a good unemployment insurance scheme is a delicate matter. In a system with no or little insurance, households may be subject to a high income risk, whereas excessively generous unemployment insurance systems are known to lead to high unemployment rates and are costly both from a fiscal perspective and for society as a whole. Andreas Pollak investigates what an optimal unemployment insurance system would look like, i.e. a system that constitutes the best possible compromise between income security and incentives to work. Using theoretical economic models and complex numerical simulations, he studies the effects of benefit levels and payment durations on unemployment and welfare. As the models allow for considerable heterogeneity of households, including a history-dependent labor productivity, it is possible to analyze how certain policies affect individuals in a specific age, wealth or skill group. The most important aspect of an unemployment insurance system turns out to be the benefits paid to the long-term unemployed. If this parameter is chosen too high, a large number of households may get caught in a long spell of unemployment with little chance of finding work again. Based on the predictions in these models, the so-called "Hartz IV" labor market reform recently adopted in Germany should have highly favorable effects on the unemployment rates and welfare in the long run.

To harness the full power of computer technology, economists need to use a broad range of mathematical techniques. In this book, Kenneth Judd presents techniques from the numerical analysis and applied mathematics literatures and shows how to use them in economic analyses. The book is divided into five parts. Part I provides a general introduction. Part II presents basics from numerical analysis on R^n, including linear equations, iterative methods, optimization, nonlinear equations, approximation methods, numerical integration and differentiation, and Monte Carlo methods. Part III covers methods for dynamic problems, including finite difference methods, projection methods, and numerical dynamic programming. Part IV covers perturbation and asymptotic solution methods. Finally, Part V covers applications to dynamic equilibrium analysis, including solution methods for perfect foresight models and rational expectation models. A website contains supplementary material including programs and answers to exercises.

This paper discusses theoretical aspects and evidences related to designing labor market institutions in emerging market and developing economies. This note reviews the state of theory and evidence on the design of labor market institutions in a developing economy context and then reviews its consistency with actual labor market advice in a selected set of emerging and developing economies. The focus is mainly on three broad sets of institutions that matter for both workers’ protection and labor market efficiency: employment protection, unemployment insurance and social assistance, minimum wages and collective bargaining. Text mining techniques are used to identify IMF recommendations in these areas in Article IV Reports for 30 emerging and frontier economies over 2005–2016. This note has provided a critical review of the literature on the design of labor market institutions in emerging and developing market economies, and benchmarked the advice featured in IMF recommendations for 30 emerging market and frontier economies against the tentative conclusions from the literature.

I use three decades of county-level data to estimate the effects of federal unemployment benefit extensions on economic activity. To overcome the reverse causality coming from the fact that benefit extensions are a function of state unemployment rates, I only use the within-state variation in outcomes to identify treatment effects. Identification rests on a differences-in-differences approach which exploits heterogeneity in county exposure to policy changes. To distinguish demand and supply-side channels, I estimate the model separately for tradable and non-tradable sectors. Finally I use benefit extensions as an instrument to estimate local fiscal multipliers of unemployment benefit transfers. I find (i) that the overall impact of benefit extensions on activity is positive, pointing to strong demand effects; (ii) that, even in tradable sectors, there are no negative supply-side effects from work disincentives; and (iii) a fiscal multiplier estimate of 1.92, similar to estimates in the literature for other types of spending.