Abstract
The Canadian unemployment insurance program is designed to reflect the varying risk of joblessness across regions. Regions that are considered low-risk areas subsidize higher-risk ones. A region’s risk is typically proxied by its relative unemployment rate. We use a dynamic, heterogeneous-agent model calibrated to Canada to analyze voters’ preferences between a uniformly generous unemployment insurance and the current system with asymmetric generosity. We find that Canada’s unusual unemployment insurance system is surprisingly close to what voters would choose in spite of the possibilities of shirking and self-insurance through asset buildup.
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Notes
In fact, if a majority of voters are in favor of the asymmetric regime, the majority should be strengthened if migration from the few persistently hard hit areas was taken into account.
Unlike actual Canada, we work with a continuum measure of regions, not a finite number. This choice is motivated by considerations of tractability. The problem with working with a finite number of regions is that it would literally blow up the state space, as one would have to count the number of regions of each category. We work with an invariant distribution of regions using the empirical transition matrix. Note that the generosity within a category does not change with the business cycle in the existing system: thus θ j is not adjusted with the overall unemployment rate. This allows us to ignore the impact of cycles on unemployment insurance generosity.
The label “helicopter-drop” vote suggests the following type of experiment: agents are sent via helicopter at the border of two worlds in which different policies are in effect. They are then asked in which world they would rather be dropped, given that they can maintain their current state in either world. This is possible since every agent is of measure zero.
Even if we were to cluster categories three by three unemployment durations would be in the order of 3 years, implying that future outcomes would still be very relevant with standard discount rates.
As a referee pointed out, anecdotal evidence suggests durations are not uniform. Having differentiated durations would certainly make a better model, but would likely not affect results significantly.
The Conference of Prime Ministers is an assembly of all provincial prime ministers. At the moment, it is nothing more than a lobby trying to influence federal policies.
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Acknowledgements
We thank the participants for comments, as well as the three referees. We gratefully acknowledge financial support from FCAR/FQRSC.
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Pallage, S., Zimmermann, C. On voters’ attitudes towards unemployment insurance subsidies across regions: a Canadian simulation. J Popul Econ 19, 391–410 (2006). https://doi.org/10.1007/s00148-005-0028-9
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DOI: https://doi.org/10.1007/s00148-005-0028-9