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Incentive Contracts and Efficient Unemployment Benefits

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  • Dominique Demougin
  • Carsten Helm

Abstract

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the works position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated works affect this trade-off.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2670.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2670

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Keywords: unemployment benefits; incentive contracts; Nash bargaining; moral hazard; globalisation;

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References

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Cited by:
  1. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20906, Hamburg University, Department of Economics.
  2. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 443-456, March.
  3. Marcus Dittrich & Silvio Städter, 2014. "Moral Hazard and Bargaining over Incentive Contracts," CESifo Working Paper Series 4920, CESifo Group Munich.

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