Specific Skills, Unemployment Risk, and Insurance: an Experimental Approach

Abstract: This article provides the first experimental analysis of the effects of unemployment risk and insurance on specific skills investment, using both laboratory and online samples. We find that, even in highly permissive contractual environments, more generous unemployment insurance leads to a greater level of investment in specific skills that risk becoming obsolete. Subjects who invest in acquiring these skills also work harder at the experimental task. We see weak evidence that skill investment responds to unemployment risk. We find no evidence that more generous unemployment insurance creates labor market frictions in the form of workers waiting longer to take a new job after unemployment.