In this paper, we incorporate a positive theory of unemployment insurance into a dynamic overlapping generations model … unemployment insurance levels in a politico-economic equilibrium. The interaction between the political decision about the level of … the unemployment insurance and the optimal search behavior of the unemployed gives rise to a self-reinforcing mechanism …

. Unemployment insurance has the standard effect of reducing employment, but also helps workers to get a suitable job. The … unemployment, productivity growth and wage inequality. To show this, we construct two fictitious economies with calibrated … parameters which only differ by the degree of unemployment insurance and assume that they are hit by a common technological shock …