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A coalitional theory of unemployment insurance and employment protection

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  • Vincent Anesi

    ()

  • Philippe De Donder

    ()

Abstract

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria belonging to the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 52 (2013)
Issue (Month): 3 (April)
Pages: 941-977

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Handle: RePEc:spr:joecth:v:52:y:2013:i:3:p:941-977

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Related research

Keywords: Bidimensional voting; Party competition; Citizen-candidate; Coalition formation; Labor market rigidities; D72; J65; J68;

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  1. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  17. Vincent Anesi & Philippe De Donder, 2009. "Party Formation and Minority Ideological Positions," Economic Journal, Royal Economic Society, vol. 119(540), pages 1303-1323, October.
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  20. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," POLIS Working Papers 106, Institute of Public Policy and Public Choice - POLIS.
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  23. Saint-Paul, Gilles, 1999. "Assessing the Political Viability of Labour Market Reform: The Case of Employment Protection," CEPR Discussion Papers 2136, C.E.P.R. Discussion Papers.
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