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Unemployment compensation and high European unemployment: a reassessment with new benefit indicators

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  • David R. Howell
  • Miriam Rehm

Abstract

Generous unemployment benefits lie at the heart of the conventional explanation for persistent high unemployment. The effects of benefit generosity on work incentives are more ambiguous in a broader behavioural framework in which workers get substantial disutility from unemployment (given income) and know that unemployment has scarring effects in the future. The micro evidence suggests modest effects of changes in generosity, but there are reasons to doubt that the impacts on national unemployment rates are consequential. The empirical case for the orthodox prediction comes from cross-country regressions on the OECD's gross replacement rate (GRR), but the published evidence is mixed, and we find little support in the pattern of annual changes in the GRR and the unemployment rate for OECD countries over the last three decades. We take advantage of new and much improved net replacement indicators from the OECD, which show little correlation with either the GRRs or with unemployment and employment rates. We conclude that the available evidence does not offer compelling support for the conventional view. Copyright 2009, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 25 (2009)
Issue (Month): 1 (Spring)
Pages: 60-93

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Handle: RePEc:oup:oxford:v:25:y:2009:i:1:p:60-93

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  1. Hur jobbskatteavdraget skapar jobb
    by Roger Mo?rtvik in Utredarna on 2009-09-22 19:20:12
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Cited by:
  1. Andreas Sachs & Frauke Schleer, 2013. "Labour market performance in OECD countries: A comprehensive empirical modelling approach of institutional interdependencies," WWWforEurope Working Papers series 7, WWWforEurope.
  2. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(3), pages 545-571, September.
  3. Andrés Rodríguez-Pose & Vassilis Tselios, 2011. "Welfare regimes and the incentives to work and get educated," Working Papers 2011-01, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  4. Simon STURN, 2013. "Are corporatist labour markets different? Labour market regimes and unemployment in OECD countries," International Labour Review, International Labour Organization, vol. 152(2), pages 237-254, 06.
  5. Josef C Brada & Marcello Signorelli, 2012. "Comparing Labor Market Performance: Some Stylized Facts and Key Findings," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 231-250, June.
  6. Goerke, Laszlo & Pannenberg, Markus & Ursprung, Heinrich W., 2007. "A Positive Theory of the Earnings Relationship of Unemployment Benefits," IZA Discussion Papers 3003, Institute for the Study of Labor (IZA).
  7. Simon Sturn, 2011. "Labour market regimes and unemployment in OECD countries," IMK Working Paper 6-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  8. David R. Howell, 2010. "Institutions, Aggregate Demand and Cross-Country Employment Performance: Alternative Theoretical Perspectives and the Evidence," Working Papers wp228, Political Economy Research Institute, University of Massachusetts at Amherst.

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