Voting on Unemployment Insurance

Abstract

In this article, we ask heterogeneous agents in a dynamic general equilibrium economy to vote on the generosity of their unemployment insurance program. We observe the influence on their vote of (1) moral hazard, (2) private alternatives, and (3) changes in employment status. Agents differ in skills, employment probabilities, income prospects, and assets. For a calibration to the United States, we show that: (1) in contrast to the literature, plausible levels of moral hazard need not induce large cuts in optimal benefits. (2) Switching to private insurance is rejected for most status quo, though it would be as generous. (3) Skill groups vote as a block. For reasonable discount factors, solidarity is never broken simultaneously for more than one group.