The Impact of Unemployment Insurance on Job Search

Abstract

WHETHER OR NOT a long-run tradeoff exists between unemployment and inflation, there seems to be little politically acceptable opportunity, except in the short run, to buy employment at the cost of inflation. Exponents of the Phillips curve find that it is steep, and accelerationists find that the natural unemployment rate is high. Hall recently estimated that a 5.5 percent aggregate unemployment rate is necessary merely to keep inflation from accelerating.' These findings point to a high floor for unemployment, which is resistant to a one-dimensional stabilization policy depending on manipulation of aggregate demand. This realization has led to a search for structural factors that make the economy particularly prone to unemployment and inflation, a search that has uncovered the disturbing charge that the government itself promotes unemployment through the unemployment insurance system.