Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/75972 
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper No. 791
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary e.ects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states one European steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one American steadystate featuring low unemployment, high mobility and low unemployment insurance.
Subjects: 
employment
migration
geographical mobility
political equilibrium
unemployment insurance
voting.
Document Type: 
Working Paper
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