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Title: Unemployment Insurance and Home Production
Citation Type: Miscellaneous
Publication Year: 2010
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Abstract: In this paper, we incorporate home production into a quantitative model of unemployment, and show that realistic levels of home production have a significant impact on the optimal unemployment insurance rate. Using data from the American Time Use Survey (ATUS), we first show that unemployed workers spend an additional 10 hours per week in home production compared to employed workers, which is roughly a 50% increase. We use the Panel Study of Income Dynamics(PSID) data on housework to confirm that this difference is robust to controlling for unobserved heterogeneity between employed and unemployed adults. Moti-vated by this fact, we augment an incomplete markets model of unemployment with a home production technology, which allows unemployed workers to use their extra non-market time as partial insurance against the drop in income due to unemployment. In the benchmark model, we find that the optimal replacement rate in the presence of home production is roughly 40% of wages, which is 40% lower than the no-home production models optimal replacement rate of 65%. The 40% optimal rate is also close to the estimated rate in practice. The fact that home production makes a significant difference in the optimal unemployment insurance is robust to a variety of parameterizations and alternative model environments.
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Authors: Taskin, Temel
Publisher: European University Institute
Data Collections: IPUMS Time Use - ATUS
Topics: Housing and Segregation, Labor Force and Occupational Structure
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