Labour Market Analysis from a Behavioral Economics Perspective: From the Perspective of Unemployment Insurance and Employment Discrimination

Abstract

This article analyzes labor market problems through the lens of behavioral economics. This article seeks to identitys methods in which behavioral economics can provide policy recommendations for addressing issues related to unemployment and employment. While traditional economics fails to explain how unemployment insurance discourages job search and leads to long-term unemployment, behavioral economics finds that cognitive biases like loss aversion and present bias prolong unemployment. It suggests that policies must be designed by considering these cognitive biases to increase the motivation of the unemployed to accept work. One policy that can supplement unemployment insurance is wage-loss insurance. Wage-loss insurance is a short or long-term monetary subsidy when the wages in the new job are lower than in the old job. This paper uses qualitative analysis and a literature review to gather insights into labor market problems and the role of behavioral economics in addressing them.