14 Why unemployment insurance can increase economic efficiency

Introduction

The conventional wisdom argues that unemployment insurance serves to increase the rate of unemployment by various means. Unemployment rates are said to increase by attracting in to the labor market individuals who intend to quit their new jobs so as to collect this benefit, by increasing the voluntary job search time of those unemployed workers who are already in the labor force, by inducing increasing quit rates of the currently employed so that they search for better jobs, and by increasing the market wage thereby increasing the price of labor and reducing the overall competitiveness of the economy. Moreover, following upon the efficiency wage literature, unemployment ...

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