A Positive Theory of Unemployment Insurance and Employment Protection
36 Pages Posted: 15 Jul 2009
Date Written: June 2009
Abstract
The objective of this paper is to provide a political economy explanation of the empirically observed negative correlation between employment protection and insurance. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria being in the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.
Keywords: bidimensional voting, citizen-candidate, flexicurity, labor market rigidities, party competition
JEL Classification: D72, J65, J68
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Efficient Unemployment Insurance
By Daron Acemoglu and Robert Shimer
-
Productivity Gains from Unemployment Insurance
By Daron Acemoglu and Robert Shimer
-
Productivity Gains from Unemployment Insurance
By Daron Acemoglu and Robert Shimer
-
The Joint Design of Unemployment Insurance and Employment Protection: A First Pass
By Olivier J. Blanchard and Jean Tirole
-
The Optimal Design of Unemployment Insurance and Employment Protection. A First Pass
By Olivier J. Blanchard and Jean Tirole
-
The Joint Design of Unemployment Insurance and Employment Protection: A First Pass
By Olivier J. Blanchard and Jean Tirole
-
A Distinctive System: Origins and Impact of U.S. Unemployment Compensation
By Katherine Baicker, Claudia Goldin, ...
-
Unemployment Traps: Do Financial Disincentives Matter?
By Peder J. Pedersen and Nina Smith
-
Aggregate Scale Economies, Market Integration, and Optimal Welfare State Policy
By Hassan Molana and Catia Montagna