Unemployment risk, the housing market and the effects of decentralised redistribution

The paper examines the general equilibrium effects of benefits to the unemp loyed and the taxes to pay for them in a two country model in which people move to maximise expected utility. Wages are set by unions, and unemploymen t emerges as an equilibrium phenomenon. Wage setting institutions are found to be important for assessing the welfare effects of redistribution from t he employed to the unemployed. The analysis finds that, with monopoly union s, more redistribution tends to repel population from the country increasin g redistribution and to reduce welfare in both countries, but the opposite is the case in a model in which wage setting does not depend on unemploymen t benefits and taxes. These effects are dampened by the combination of risk averse consumers and inelastic housing supply.