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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1508 On Households and Unemployment Insurance (Sekyu Choi & Arnau Valladares-Esteban)


Sekyu Choi (University of Bristol) & Arnau Valladares-Esteban (University of Southampton)

Paper Number 1508

October 2015


In this paper we study unemployment insurance in a framework where the main source of
heterogeneity among agents is the type of household they live in: some agents live alone while
others live with their spouses as a family. Our exercise is motivated by the fact that married
individuals can rely on spousal income to smooth labor market shocks, while singles cannot. We
extend a version of the standard incomplete markets model to include two-agent households and
calibrate it to the US economy, with special emphasis on matching differences in labor market
transitions among different types of households. Our central finding is that the unemployment
insurance program improves the welfare of single households but not of married ones. We show
that this result is driven by the amount of self insurance existing in married households and thus,
we highlight the interplay between self and government provided insurance and its implication for policy.






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