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You are hired by the presidential administration to review the UI program, which currently replaces approximately 45% of a workers wages for 26 weeks after
- You are hired by the presidential administration to review the UI program, which currently replaces approximately 45% of a workers wages for 26 weeks after she loses her job. Consider two alternative reforms of the current UI system. The first is to experience-rate firms fully, so that the taxes firms pay are set exactly equal to the benefits their workers receive (benefits remain at 45% of wages). The second is a system of individual full experience ratingthe government lends individuals 45% of their wages while unemployed, but the individuals have to pay this back when they get new jobs.
- Contrast the effects of these alternative policies on unemployment durations and the likelihood of worker layoffs.
b. What are the consumption-smoothing properties of each alternative policy?
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