A positive theory of geographic mobility and social insurance

John Hassler, José V. Mora RodríGuez, Kjetil Storesletten, Fabrizio Zilibotti

Research output: Contribution to journalArticlepeer-review

Abstract

This article presents a tractable dynamic general equilibrium model explaining cross-country data on geographical mobility, unemployment, and labor market institutions. Rational forward-looking agents vote on unemployment insurance (UI). Agents with higher moving costs (larger attachment to their location) prefer more generous UI. Attachment is assumed to increase with the duration of residence. UI mitigates incentives for moving and increases, therefore, the fraction of attached agents and the political support for UI. This self-reinforcing mechanism can yield two steady-states: one "European" and one "American." The former (latter) features high (low) unemployment, low (high) geographical mobility, and high (low) UI.

Original languageEnglish (US)
Pages (from-to)263-303
Number of pages41
JournalInternational Economic Review
Volume46
Issue number1
DOIs
StatePublished - Feb 2005
Externally publishedYes

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