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Unemployment Compensation Finance and Efficiency Wages

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  • Albrecht, James W
  • Vroman, Susan B

Abstract

This article examines the effects of unemployment compensation finance in a labor market in which firms pay efficiency wages. Two self-financing unemployment compensation systems are compared: one in which benefits are financed by a proportional payroll tax and another in which experience rating is introduced by taxing firms in proportion to their separations. The authors find that experience rating leads to less unemployment, less shirking, and higher output. Copyright 1999 by University of Chicago Press.

Suggested Citation

  • Albrecht, James W & Vroman, Susan B, 1999. "Unemployment Compensation Finance and Efficiency Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 141-167, January.
    • Handle: RePEc:ucp:jlabec:v:17:y:1999:i:1:p:141-67
    DOI: 10.1086/209916
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    References listed on IDEAS

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    1. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    2. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    3. James W. Albrecht & Susan B. Vroman, 1992. "Non-Existence of Single-Wage Equilibria in Search Models with Adverse Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 617-624.
    4. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    5. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.
    6. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    8. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
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    Citations

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    Cited by:

    1. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    2. Peter Hans Matthews, 2005. "Labor Discipline, Reputation and Underemployment Traps," Middlebury College Working Paper Series 0501, Middlebury College, Department of Economics.
    3. Cahuc, Pierre & Malherbet, Franck, 2004. "Unemployment compensation finance and labor market rigidity," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 481-501, March.
    4. Stéphane Auray & David L. Fuller, 2020. "Eligibility, experience rating, and unemployment insurance take‐up," Quantitative Economics, Econometric Society, vol. 11(3), pages 1059-1107, July.
    5. Malherbet, Franck & L'Haridon, Olivier, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," CEPR Discussion Papers 3614, C.E.P.R. Discussion Papers.
    6. Jon Strand, 2002. "Effects of Progressive Taxes under Decentralized Bargaining and Heterogeneous Labor," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(2), pages 195-210, March.
    7. repec:ces:ifodic:v:3:y:2005:i:2:p:14567656 is not listed on IDEAS
    8. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    9. Guo, Audrey & Johnston, Andrew C., 2020. "The Finance of Unemployment Compensation and its Consequence for the Labor Market," IZA Discussion Papers 13330, Institute of Labor Economics (IZA).
    10. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(02), pages 45-50, July.
    11. Sahin Avcioglu & Bilgehan Karabay, 2020. "Labor market regulation under self‐enforcing contracts," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1965-2018, December.
    12. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    13. Helge Sanner, 2001. "Regional Unemployment Insurance," Volkswirtschaftliche Diskussionsbeiträge 41, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
    14. Bo Sandemann Rasmussen, "undated". "Efficiency Wages and the Long-Run Incidence of Progressive Taxation," Economics Working Papers 2001-5, Department of Economics and Business Economics, Aarhus University.
    15. Guo, Audrey, 2020. "The Effects of Unemployment Insurance Taxation on Multi-Establishment Firms," MPRA Paper 97919, University Library of Munich, Germany.
    16. Altenburg, Lutz & Straub, Martin, 2001. "Taxes on labour and unemployment in a shirking model with union bargaining," Labour Economics, Elsevier, vol. 8(6), pages 721-744, December.
    17. repec:hal:spmain:info:hdl:2441/5f63rk8j8i8vlpr3b1ernvsg0u is not listed on IDEAS
    18. Julia Fath & Clemens Fuest, 2005. "Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 299-314, June.
    19. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(2), pages 45-50, 07.

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