Unemployment benefit profile, monitoring and active labor market policies : the role of normative criteria

The design of the unemployment insurance system critically depends on the choice of the evaluation criterion. Indicators of labor market performance, welfarist and non-welfarist criteria are compared. They often lead to very different conclusions. This paper also highlights that the distributional consequences of reforms should attract attention. A declining time profile of benefit payments dominates a scheme with a constant replacement ratio. According to welfarist and non-welfarist criteria, this profile should be skill-specific. For reasonable values of the monitoring cost, relating this profile to job-search effort produces positive but limited effects. Analytical and simulation results show that the design of the UI system is affected by the presence of active programs.