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Unemployment Insurance and the Role of Retained Earnings from Part-Time Work

Chris Hocker In this paper, I adapt the game-theoretical model of Zuckerman (1985) to include the decision to take on a part-time job while receiving unemployment benefits. The optimal stopping rule is defined, as is the rule for accepting part-time work while receiving unemployment compensation. It is shown that an increase in the value of part-time work actually decreases its appeal, due to the effects on reservation wages.