Unemployment Insurance and Job Search — Real Options Approach

• Main Authors: Mei-Hui Yeh, 葉玫惠
• Other Authors: San-Lin Chung
• Format: Others
• Language: en_US
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/34963753427341073582

碩士 === 國立臺灣大學 === 財務金融學研究所 === 92 === The key insight of this paper is that unemployment insurance may serve as a good substitute for investment in waiting for the optimal job opportunities in the job search processes. The unemployment benefit releases the income pressure and hence encourages the labor to wait a better job which maximizes his future total wage utility. This paper takes a fundamentally different method by applying real option approach to the job search processes. Job search approach is similar to buying an American call option. At each moment, an unemployed labor seems to hold an option to accept a job opportunity or to keep searching. Accepting a job opportunity is similar to early exercising the call option and keeping search is similar to holding the call. Unemployment benefits change the future wage utility of an unemployed labor. From the differences of the wage utility, the impacts of unemployment benefits are obvious.