Wednesday, June 26, 2013

Home production vs. unemployment insurance

Many are worried that generous unemployment insurance benefits lead to moral hazard: the unemployed do not search hard enough for a new job because the benefits give them excess security. These benefits may also have other consequences. It is known that people become much better with managing a smaller budget once they retire because they have the time to look for shopping bargains and they can substitute goods bought on the market with good produced at home. In the case of the unemployed, we covered bargain shopping before, now let us discuss home production.

Bülent Güler and Temel Taşkın use the American Time Use Survey and find that more more generous state unemployment insurance benefits are, the less time unemployed workers spend productively at home (We have shown before they spend a lot of unproductive time). Indeed we can understand home production as a different insurance mechanism which can be a substitute for unemployment insurance. Of course, there is also the extreme case in home production insurance, living with your parents.

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