Dynamic Wage Bargaining If Benefits are Tied to Individual Wages
Oxford Economic Papers, Vol. 56, No. 3, pp. 437-460, 2004
Posted: 18 Feb 2012
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Dynamic Wage Bargaining If Benefits are Tied to Individual Wages
Date Written: July 1, 2004
Abstract
In dynamic wage bargaining models it is usually assumed that individual unemployment benefits are a fraction of the average wage level. In most countries, however, unemployment benefits are instead tied to the previous level of individually earned wages. We show how the analysis has to be modified if this fact is taken into account and compare our findings for the wage-setting curve with outcomes under other unemployment compensation schemes. From this comparison it becomes evident how the shape and position of the wage-setting curve depends on the specification of the unemployment benefit system. We also demonstrate that a reduction of unemployment benefits of those who get unemployed after the bargaining period leads to higher equilibrium unemployment.
Keywords: Dynamic wage bargaining, wage curve, unemployment benefits
JEL Classification: J51, J65, E24
Suggested Citation: Suggested Citation