Template-type: ReDif-Paper 1.0 
Author-Name: Brown, Alessio
Author-Email: brown@merit.unu.edu
Author-workplace-name: UNU‐MERIT, Maastricht University
Author-Name: Kohlbrecher, Britta
Author-Email: britta.kohlbrecher@fau.de
Author-workplace-name: Friedrich-Alexander-Universität Erlangen-Nürnberg
Author-Name: Merkl, Christian
Author-Email: christian.merkl@fau.de
Author-workplace-name: Friedrich-Alexander-Universität Erlangen-Nürnberg, and IZA
Author-Name: Snower, Dennis J.
Author-Email: dennis.snower@ifw-kiel.de
Author-workplace-name: Kiel Institute for the World Economy, IZA, CEPR, and Christian
	-Albrechts-Universität Kiel
Title: The effects of productivity and benefits on unemployment: Breaking the link
Abstract: In the standard macroeconomic search and matching model of the labour 
	 market, there is a tight link between the effects of (i) productivity on 
	 unemployment and (ii) unemployment benefits on unemployment. This tight 
	 link is at odds with the empirical literature. We present a two-sided 
	 model of labour market search where the household and firm decisions are 
	 decomposed into job offers, job acceptances, firing, and quits. In such 
	 a model, unemploy-ment benefits affect households’ behaviour directly, 
	 without having to run via the bargained wage. In line with the evidence, 
	 productivity shocks may have quantitatively large effects on 
	 unemployment, while benefits only have moderate effects. Our analysis 
	 shows the importance of investigating the effects of policies on the 
	 households’ work incentives and the firms’ employment incentives within 
	 the search process.
Keywords: Unemployment benefits, search and matching, aggregate shocks, macro model,
	 labour market
Classification-JEL: E24, E32, J63, J64
Series: UNU-MERIT Working Papers
Creation-Date: 20160524
Number: 2016-032
File-URL: https://unu-merit.nl/publications/wppdf/2016/wp2016-032.pdf
File-Format: application/pdf
File-Size: 275 kb
Handle: RePEc:unm:unumer:2016032