Front-loading the Payment of Unemployment Benefits

We study the effects of front-loading the payment of unemployment benefits in general equilibrium economies with imperfect labor and insurance markets, focusing on the trade-off between improved re-employment rates and the potential welfare losses accruing from consumption-smoothing problems. The calibration to U.S. data shows that these losses are large, enough to offset most gains from front-loading the benefit system. The nature of labor market frictions – i.e. stemming from workers’ search efforts or firms’ vacancy posting – changes the underlying mechanisms, but not the overall welfare figures. We discuss robustness to changing the generosity, duration and eligibility of unemployment insurance.