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Employment and Welfare Effects of a Two-Tier Unemployment Compensation System

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  • Burkhard Heer

Abstract

In many OECD countries, e.g. in Germany, France, or the UK, unemploy-ment compensation consists of unemployment insurance and unemployment assistance. Unemployment assistance is provided subsequent to the expiration of entitlement to unemployment insurance and is lower. The effects of this two-tier unemployment compensation system are studied in a general equilibrium job search model with endogenous distributions of in-come, wealth, and employment which is calibrated with regard to the charac-teristics of the German economy. Our results are as follows: i) employment is a decreasing function of both unemployment insurance and unemployment assistance. ii) Savings are (not) a monotone increasing function of unemployment insurance (unemployment assistance payments). iii) Optimal unemployment compensation payments are found to be a decreasing function over time.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 297.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_297

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Related research

Keywords: Unemployment compensation; search unemployment; general equilibrium; overlapping generations;

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Citations

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Cited by:
  1. Milan Vodopevic, 2004. "Comparing Unemployment Insurance and Unemployment Assistance," World Bank Other Operational Studies 11811, The World Bank.
  2. Burkhard Heer & Albrecht Morgenstern, 2005. "The Labor Market Effects of Indexing Unemployment Benefits to Previous Earnings," Public Finance Review, , vol. 33(3), pages 385-402, May.
  3. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
  4. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers 25529, The World Bank.
  5. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, 07.
  6. John Hassler & José V. Rodriguez Mora, 2002. "Should UI Benefits Really Fall over Time?," CESifo Working Paper Series 804, CESifo Group Munich.
  7. Andreas Pollak, 2005. "Optimal Unemployment Insurance in a Search Model with Variable Human Capital," Computing in Economics and Finance 2005 324, Society for Computational Economics.
  8. Heer, Burkhard & Trede, Mark, 2003. "Efficiency and distribution effects of a revenue-neutral income tax reform," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 87-107, March.
  9. Andreas Pollak, 2005. "Optimal Unemployment Insurance and Voting," Computational Economics 0505002, EconWPA.
  10. Pollak, Andreas, 2007. "Optimal unemployment insurance with heterogeneous agents," European Economic Review, Elsevier, vol. 51(8), pages 2029-2053, November.

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