Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/141582
Authors: 
Parsons, Donald O.
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9823
Abstract: 
Job displacement in the U.S. is a serious threat to the earnings of long-tenured workers, through both (i) unemployment spells and (ii) reduced reemployment wages. Although full insurance requires both unemployment benefits and wage insurance, supply difficulties limit actual-loss insurance, and separation packages typically include partial unemployment insurance and scheduled (fixed sum) severance pay. The design of this two dimensional package requires a systems approach as well as a generalized replacement ratio measure of adequacy). Job search moral hazard and layoff moral hazard (firing costs), individually and in combination, introduce potentially serious contracting concerns. Economic theory provides a practical guide to the integration of these insurance instruments in this complex planning environment. One important implication: given the structure of earnings losses at displacement in the U.S., severance pay should increase with length of service in the firm ("tenure"), which is common, and unemployment insurance benefit levels should fall, which is not.
Subjects: 
job displacement
unemployment insurance
wage insurance
severance pay
moral hazard
insurance adequacy
replacement rate
JEL: 
J65
J41
J33
J08
Document Type: 
Working Paper

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