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Relative Income, Redistribution And Well-being

In a model with heterogeneous workers and both intensive and extensive margins of employment, the authors consider two systems of redistribution: a universal basic income, and a categorical unemployment benefit. Well-being depends on own-consumption relative to average employed workers' consumption, and concern for relativity is a parameter that affects model outcomes. While labour supply incurs positive marginal disutility, they allow negative welfare effects of unemployment. They also compare Rawlsian and utilitarian welfare in general equilibrium under the polar opposite transfer systems, with varying concern for relativity. Basic income Pareto dominates categorical benefits with moderate concern for relativity in both cases.

Provided by: Institute for the Study of Labor Topic: CXO Date Added: Oct 2010 Format: PDF

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