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Labour Market Effects of Unemployment Accounts: Insights from Behavioural Economics

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  • Thomas van Huizen
  • Janneke Plantenga

Abstract

This article reconsiders the behavioural effects of replacing the existing unemployment insurance system with unemployment accounts (UAs). Under this alternative system, workers are required to save a fraction of their wage in special accounts, whereas the unemployed are allowed to withdraw savings from these accounts. Previous studies argued that such a reform will improve employment incentives considerably and thereby lead to a dramatic decrease in unemployment levels and durations. We show that this expected impact hinges critically on the assumptions on time preferences. Using recent insights from behavioural economics, we demonstrate that the theoretical impact of UAs is ambiguous rather than substantially positive. (JEL codes: D03, J64, J65) Copyright The Author 2011. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Thomas van Huizen & Janneke Plantenga, 2011. "Labour Market Effects of Unemployment Accounts: Insights from Behavioural Economics," CESifo Economic Studies, CESifo Group, vol. 57(4), pages 581-604, December.
    • Handle: RePEc:oup:cesifo:v:57:y:2011:i:4:p:581-604
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifr021
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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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