Figure 2: Involuntary Unemployment
LTU STU Employed
invol. LTU invol. STU
retrain), the present-biased value of life-time income becomes
T-τ
Vτ-ι(h, τ) = b(1 - θ)h - kτ-1 ∙ c ∙ e + β ∑ δs(1 - θ)
s=1
(1 - d)h +
(S‘ ■)
(13)
implying that they will retrain if
c < β(1 — τ)δτ.
(14)
(15)
They will not retrain if the costs of retraining fulfill
β<δτ < ---< < δ>τ.
1-θ
If condition (15) holds, present-biased agents do not retrain when they lose eligibility for un-
employment benefits although they originally planned to use the STU spell to upgrade their
skills.
Figure 2 illustrates the consequences of a failed retraining episode depending on the worker’s
initial skill level. Because retraining was, in principle, worthwhile, failed retraining shifts life-
time income V(h,τ) downwards. At the upper end of the education spectrum, between h'C
and hC , we find those workers who would have preferred to be employed had they known
19
More intriguing information
1. The name is absent2. ISSUES IN NONMARKET VALUATION AND POLICY APPLICATION: A RETROSPECTIVE GLANCE
3. FDI Implications of Recent European Court of Justice Decision on Corporation Tax Matters
4. WP 1 - The first part-time economy in the world. Does it work?
5. Kharaj and land proprietary right in the sixteenth century: An example of law and economics
6. An Empirical Analysis of the Curvature Factor of the Term Structure of Interest Rates
7. Economie de l’entrepreneur faits et théories (The economics of entrepreneur facts and theories)
8. Eigentumsrechtliche Dezentralisierung und institutioneller Wettbewerb
9. The name is absent
10. Evolving robust and specialized car racing skills