Reservation Wages and Unemployment Insurance (screen version)
(print version)
Robert Shimer (Chicago) and Ivan Werning (MIT)
This paper argues that a
risk-averse worker's after-tax reservation wage encodes all the relevant
information about her welfare. This insight leads to a novel test for the
optimality of unemployment insurance based on the responsiveness of reservation
wages to unemployment benefits. Some existing estimates imply significant gains
to raising the current level of unemployment benefits in the