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A positive theory of the earnings relationship of unemployment benefits

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  • Laszlo Goerke

    ()

  • Markus Pannenberg
  • Heinrich Ursprung

Abstract

Evidently, the benefit-structure of the unemployment insurance has a significant influence on profits and trade union utility. We show for a wage bargaining model that a stronger earnings relationship of unemployment benefits may reduce wages and increase employment. This raises the question as to how the benefit structure is determined in the political process. To answer this question, we consider a government that chooses the earnings relationship with a view to maximising its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak one when the unions' influence is pronounced. Deepening international economic integration has ambiguous effects. Using panel data for 19 OECD countries from 1961 to 2003 we find support for the hypothesized domestic influences and show that the earnings relationship varies negatively with openness.

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 145 (2010)
Issue (Month): 1 (October)
Pages: 137-163

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Handle: RePEc:kap:pubcho:v:145:y:2010:i:1:p:137-163

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Earnings relationship; Panel data; Political support maximization; Wage bargaining; Unemployment benefits; D72; J51; J65;

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Citations

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Cited by:
  1. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March.
  2. Mario Mechtel & Niklas Potrafke, 2013. "Electoral cycles in active labor market policies," Public Choice, Springer, vol. 156(1), pages 181-194, July.
  3. Moyen, Stéphane & Stähler, Nikolai, 2009. "Unemployment insurance and the business cycle: prolong benefit entitlements in bad times?," Discussion Paper Series 1: Economic Studies 2009,30, Deutsche Bundesbank, Research Centre.
  4. Potrafke, Niklas, 2012. "Political cycles and economic performance in OECD countries: Empirical evidence from 1951-2006," Munich Reprints in Economics 19272, University of Munich, Department of Economics.
  5. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 22780, University Library of Munich, Germany, revised May 2010.

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