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Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable?

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  • Julia Fath
  • Clemens Fuest

Abstract

This paper explores how the introduction of an experience-rated system of unemployment insurance affects employment and welfare in a model where implicit contracts between firms and workers give rise to wage rigidities and unemployment. In the literature, it has been argued that experience-rated systems of unemployment insurance may reduce long-term employment as firms anticipate the higher costs of layoffs implied by experience rating. Our analysis shows that the introduction of experience rating may increase or decrease long-term employment but it unambiguously raises welfare. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2005.

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 6 (2005)
Issue (Month): 4 (November)
Pages: 471-483

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Handle: RePEc:bla:germec:v:6:y:2005:i:4:p:471-483

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References

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  1. Addison, John T. & Teixeira, Paulino, 2001. "The Economics of Employment Protection," IZA Discussion Papers 381, Institute for the Study of Labor (IZA).
  2. Burdett, Kenneth & Wright, Randall, 1989. "Optimal firm size, taxes, and unemployment," Journal of Public Economics, Elsevier, vol. 39(3), pages 275-287, August.
  3. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. Ljungqvist, Lars, 2001. "How Do Layoff Costs Affect Employment?," CEPR Discussion Papers 3051, C.E.P.R. Discussion Papers.
  5. Akerlof, George A & Miyazaki, Hajime, 1980. "The Implicit Contract Theory of Unemployment Meets the Wage Bill Argument," Review of Economic Studies, Wiley Blackwell, vol. 47(2), pages 321-38, January.
  6. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 479-89.
  7. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-96, December.
  8. Julia Fath & Clemens Fuest, 2005. "Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 299-314, 06.
  9. Ljungqvist, Lars, 2001. "How Do Layoff Costs Affect Employment?," IZA Discussion Papers 403, Institute for the Study of Labor (IZA).
  10. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
  11. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-46, December.
  12. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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Cited by:
  1. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(2), pages 45-50, 07.
  2. Pekka Sinko, 2003. "Subsidizing vs. Experience Rating of Unemployment Insurance in Unionized Labor Markets," Discussion Papers 319, Government Institute for Economic Research Finland (VATT).

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