Unemployment Insurance and the Role of Human Capital

Master thesis by Nawid Siassi
December 15, 2006

Abstract:

This thesis studies the role of human capital formation for the design

of an optimal unemployment insurance scheme. In a simple

search-and-matching model agents can accumulate human capital

on the job and face the risk of losing it when unemployed.

Human capital serves as productivity-enhancing and therefore

provides an additional incentive to avoid unemployment. Oversized

unemployment insurance schemes with indenite payments

distort this incentive. They can cause persistent unemployment

and make the economy more susceptible. In constrast, declining

schedules can increase welfare, output and productivity.