Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200825 
Authors: 
Year of Publication: 
2018
Citation: 
[Journal:] KDI Journal of Economic Policy [ISSN:] 2586-4130 [Volume:] 40 [Issue:] 3 [Publisher:] Korea Development Institute (KDI) [Place:] Sejong [Year:] 2018 [Pages:] 1-44
Publisher: 
Korea Development Institute (KDI), Sejong
Abstract: 
This paper studies the macroeconomic effects of an enhancement in unemployment benefits in Korea. In particular, I quantify the welfare effect of two specific policy chances which have been mainly discussed among policymakers in recent years: increasing wage replacement rates by 10%p and extending maximum benefit durations by one month. To this end, I build and calibrate an overlapping generation model which reflects the heterogeneity of the unemployed and the specificity of the unemployment insurance (UI) system in Korea. The quantitative analysis conducted here shows that extending maximum benefit durations by one month improves social welfare, whereas increasing wage replacement rates by 10%p deteriorates social welfare. Extending maximum benefit durations is applied to potentially all the UI recipients, including unemployed workers whose wage before job loss is relatively low and whose marginal utility is relatively high. However, increasing wage replacement rates is applied to only a small number of UI recipients whose wage before job loss is relatively high, while the increase in the UI premium is passed onto all of the employed. This study suggests that given the current UI system and economic environment in Korea, it is more desirable to extend maximum benefit durations rather than to increase wage replacement rates in terms of social welfare.
Subjects: 
Unemployment Insurance
Unemployment Benefits
Wage Raplacement Rate
Maximum Benefit Duration
JEL: 
E24
J64
J65
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-sa Logo
Document Type: 
Article

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