This paper evaluates the role of unemployment benefits as a tool for redistribution. In a
setting with worker heterogeneity, the provision of unemployment benefits achieves two
goals: it provides insurance to workers in the event of job loss and it redistributes wealth
from individuals with more to those with fewer economic opportunities. Our model features a
frictional labour market and an incomplete financial market. When calibrated to match
stylised facts of the US economy, the optimal level of unemployment benefits is broadly …