The divergence of unemployment rates between the United States and Europe coincided with a substantial acceleration in … change. The proposed framework offers a novel explanation for the observed divergence of unemployment rates across economies … adoption. The results of the paper challenge the popular, but controversial, view that blames generous unemployment insurance …

- cancy subsidy, a layoff tax and unemployment benefits. We derive analytical expressions for the optimal setting of each of … replacement rate of unemployment insurance should all rise in recessions. We find this confirmed in a calibration targeted to the …