Two Equivalence Results between Unemployment Insurance and Wage Insurance
Theoretical Economics
2026-05-28 v1
Abstract
In this short note, I show that in a McCall (1970) model with risk-neutral agents, a system of wage insurance combined with unemployment insurance financed by a lump-sum tax on the employed can be replicated -- in the ex ante sense -- by a system of unemployment insurance that depends on the agent's wage when last employed and a tax that depends on the agent's wage when employed. This holds with or without endogenous search when unemployed. I also show that wage insurance is not binding until the last earned wage exceeds a threshold, which may be of independent interest.
Cite
@article{arxiv.2605.28562,
title = {Two Equivalence Results between Unemployment Insurance and Wage Insurance},
author = {Anchi Xia},
journal= {arXiv preprint arXiv:2605.28562},
year = {2026}
}