Unemployment Insurance and Home Production
In this paper, we incorporate home production into a quantitative model of unemployment, and show that realistic levels of home production have a significant impact on the optimal unemployment insurance rate. Using data from the American Time Use Survey (ATUS), we first show that unemployed workers spend an additional 10 hours per week in home production compared to employed workers, which is roughly a 50% increase. We use the Panel Study of Income Dynamics (PSID) data on housework to confirm that this difference is robust to controlling for unobserved heterogeneity between employed and unemployed adults. Motivated by this fact, we augment an incomplete markets model of unemployment with a home production technology, which allows unemployed workers to use their extra non-market time as partial insurance against the drop in income due to unemployment. In the benchmark model, we find that the optimal replacement rate in the presence of home production is roughly 40% of wages, which is 40% lower than the no-home production model’s optimal replacement rate of 65%. The 40% optimal rate is also close to the estimated rate in practice. The fact that home production makes a significant difference in the optimal unemployment insurance is robust to a variety of parameterizations and alternative model environments.
Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle (joint with Yavuz Arslan)
In this paper, we incorporate price search decision into a life cycle model, and differentiate consumption from expenditure. The consumers with low wealth and bad income shocks search more for cheaper prices and pay less which makes their consumption higher than a model without search option. A plausibly calibrated version of our model predicts that the cross sectional variance of consumption is around 15% smaller than the cross sectional variance of expenditure through out the life cycle. Price search has an alternative productive activity role for the lower income people to increase their consumption levels. We discuss other implications of price search over the life-cycle as well.
Heterogeneity in Unemployment Insurance Policies and Home Production in the U.S.
In this paper, we use American Time Use Survey (ATUS) and
heterogeneity in unemployment insurance policies across states to
examine the relationship between unemployment insurance policies
and home production. The empirical results suggest that moving to
a two times more generous state would decrease time spent on home
production about 11 hours per week for unemployed. We also show
that theory is consistent with this empirical observation under