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On the extent of re-entitlement effects in unemployment compensation

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  • Ortega, Javier
  • Rioux, Laurence

Abstract

We analyze the implications of two-tier unemployment compensation systems with non-automatic eligibility in an equilibrium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, re-entitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease in benefits over time, and a longer employment duration required for UI eligibility than in the current system.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 2 (April)
Pages: 368-382

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Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:368-382

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Re-entitlement effects Unemployment compensation Matching;

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Cited by:
  1. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, vol. 19(6), pages 888-897.
  2. Lorenzo Corsini, 2011. "On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy," Discussion Papers 2011/119, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  3. Anne Lauringson, 2011. "Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 25-50, July.

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