Last updated on 09/22/2017
Hendren, Nathaniel. 2017. “Knowledge of Future Job Loss and Implications for Unemployment Insurance.” American Economic Review 107 (7): 1778-1823.
This paper provides evidence that individuals' knowledge about their potential future job loss prevents the existence of a private market for unemployment insurance (UI). Using information contained in subjective probability elicitations, I show privately-traded UI policies would be too adversely selected to be profitable, at any price. Moreover, in response to learning about future unemployment, individuals decrease consumption and spouses are more likely to enter the labor market. From a normative perspective, this suggests existing estimates miss roughly 35% of the social value of UI because it also partially insures against the risk of learning one might lose their job.