Question: Optimal unemployment insurance: Consider the following two proposals to reform unemployment insurance. Explain the arguments for and against each reform.
(a) The insurance payment would be increased so that it replaced 100% of a worker's regular labor income for 26 weeks.
(b) Each worker would be paid a lump sum equal to 10 weeks of his or her labor income at the start of the spell of unemployment. There would then be no other payments.