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Employment and Welfare Effects of a Two-Tier Unemployment Compensation System

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  • Heer, Burkhard

Abstract

In Germany, as in many OECD countries, such as the United Kingdom, unemployment compensation consists of unemployment insurance and unemployment assistance. Unemployment assistance is provided subsequent to the expiration of entitlement to unemployment insurance and is lower. The effects of this two-tier unemployment compensation system are studied in a general equilibrium job search model with endogenous distributions of income, wealth, and employment which is calibrated with regard to the characteristics of the German economy. Our results are as follows: (i) employment is a decreasing function of both unemployment insurance and unemployment assistance. (ii) Aggregate savings are (not) a monotone decreasing function of unemployment assistance (unemployment insurance) payments. (iii) Optimal unemployment compensation payments are found to be a decreasing function over time. Copyright 2003 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 10 (2003)
Issue (Month): 2 (March)
Pages: 147-68

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Handle: RePEc:kap:itaxpf:v:10:y:2003:i:2:p:147-68

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Web page: http://www.springerlink.com/link.asp?id=102915

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Citations

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Cited by:
  1. Gabriele, CARDULLO & Bruno, VANDERLINDEN, 2006. "Employment subsidies and substitutable skills : An equilibrium matching approach," Discussion Papers (ECON - Département des Sciences Economiques) 2006010, Université catholique de Louvain, Département des Sciences Economiques.
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics.
  3. Milan Vodopevic, 2004. "Comparing Unemployment Insurance and Unemployment Assistance," World Bank Other Operational Studies 11811, The World Bank.
  4. Heer, Burkhard & Morgenstern, Albrecht, 2000. "Indexation Of Unemployment Benefits To Previous Earnings, Employment And Wages," Discussion Papers in Economics 30, University of Munich, Department of Economics.
  5. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers 25529, The World Bank.
  6. Heer, Burkhard & Trede, Mark, 2003. "Efficiency and distribution effects of a revenue-neutral income tax reform," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 87-107, March.
  7. Andreas Pollak, 2005. "Optimal Unemployment Insurance and Voting," Computational Economics 0505002, EconWPA.
  8. Pollak, Andreas, 2007. "Optimal unemployment insurance with heterogeneous agents," European Economic Review, Elsevier, vol. 51(8), pages 2029-2053, November.
  9. Andreas Pollak, 2005. "Optimal Unemployment Insurance in a Search Model with Variable Human Capital," Computing in Economics and Finance 2005 324, Society for Computational Economics.
  10. John Hassler & José V. Rodriguez Mora, 2002. "Should UI Benefits Really Fall over Time?," CESifo Working Paper Series 804, CESifo Group Munich.

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