Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336460 
Year of Publication: 
2025
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 211
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
15% of Danish workers account for 60% of unemployment. Are these workers unemployed more frequently because of their lower productivity or higher opportunity costs of employment? Using administrative data linking workers to their earnings, wealth, debt, health records, parental backgrounds, partners, job types, and firm-level value added, I find strong evidence that higher unemployment risk reflects lower productivity rather than higher pecuniary opportunity costs. A calibrated heterogeneousagents model with segmented labor markets is consistent with these findings: productivity differences and non-pecuniary opportunity costs explain most of the unemployment gap. This matters for social policy: optimal unemployment insurance is higher than if marginal workers' unemployment was predominantly due to a high pecuniary opportunity cost.
Subjects: 
Unemployment
income inequality
search frictions
productivity
JEL: 
E24
J21
J22
J24
Document Type: 
Working Paper

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