Unemployment vs. mismatch of talents: Reconsidering unemployment benefits

We develop an equilibrium search-matching model with risk-neutral agents an d two-sided exante heterogeneity. Unemployment insurance has the standard e ffect of reducing employment, but also helps workers to get a suitable job. We show, through calibrations, how the mere difference on unemployment ins urance, when countries experience a common skilled-biased technological sho ck, may result in differences in unemployment, productivity growth and wage inequality. These results are consistent with the contrasting performance of the labour market in Europe and the United States in the last twenty-fiv e years. The model is used to address some political economy issues.