Unemployment Insurance Savings Accounts

Unemployment insurance exists to provide protection against the hardship that would otherwise be caused by unemployment. Unfortunately, it also distorts incentives in ways that cause inefficient increases in total unemployment. In this paper we analyze empirically a modification of the traditional unemployment insurance system. We show that this alternative, based on individual savings accounts, can substantially reduce the adverse incentive effects of the existing unemployment insurance system without any decrease in the protection of those who become unemployed.