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Unemployment Insurance, Taxes, and Unemployment

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  • Randall Wright
  • Janine Loberg

Abstract

Unemployment insurance is financed by a tax on wages below a given ceiling. Daniel S. Hamermesh (1977) advocates raising this ceiling on distributional grounds. In a job-search model, this does decrease unemployment among low-wage workers, but also increases unemployment among high-wage workers, and lowers everyone's expected after-tax wage. An increase in the ceiling, combined with a proportionate reduction in the tax rate, decreases unemployment for low-wage workers while increasing their after-tax wage, without affecting high-wage workers at all. When unemployment benefits and wages are taxed at one rate, employment and wages are independent of that rate.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 20 (1987)
Issue (Month): 1 (February)
Pages: 36-54

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Handle: RePEc:cje:issued:v:20:y:1987:i:1:p:36-54

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Cited by:
  1. Jeremy Greenwood & Nezih Guner, 2009. "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 231-276 National Bureau of Economic Research, Inc.

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