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Should unemployment benefits decrease with unemployment spell ?

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  • Cahuc, Pierre
  • Lehmann, Etienne

Abstract

In this paper, we investigate whether unemployment benefits should decrease with the unemployment spell in a model where both job search intensity and wages are endogenous. Wages are set by collective agreements bargained by insiders. It is shown that a more declining time sequence of unemployment benefits leads to wage increases when the tax rate is given. Such an effect may imply an increase in unemployment and counteracts the response of job search intensity that can be found in standard job search models with a given wage distribution. Calibration exercises suggest that it costs twice more in terms of welfare loss for the long-term unemployed workers to reduce the unemployment rate of one percent when wages are endogenous than in the standard job search model.

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Bibliographic Info

Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 9916.

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Length: 19 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:cpm:cepmap:9916

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Cited by:
  1. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows," CEPR Discussion Papers 3986, C.E.P.R. Discussion Papers.
  2. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "Optimal unemployment insurance over the business cycle," LSE Research Online Documents on Economics 35596, London School of Economics and Political Science, LSE Library.
  3. David Bardey & Fernando Jaramillo, 2011. "Unemployment insurance and informality in developing countries," DOCUMENTOS DE TRABAJO 009015, UNIVERSIDAD DEL ROSARIO.
  4. Piekkola, Hannu & Haaparanta, Pertti, 1999. "Liquidity Constraints Faced by Firm and Employment," Discussion Papers 695, The Research Institute of the Finnish Economy.
  5. Heer, Burkhard, 2003. "Employment and Welfare Effects of a Two-Tier Unemployment Compensation System," International Tax and Public Finance, Springer, vol. 10(2), pages 147-68, March.
  6. Melvyn Coles & Barbara Petrongolo, 2005. "A test between matching theories," Working Papers 175, Barcelona Graduate School of Economics.
  7. Van der Linden, Bruno, 2005. "Equilibrium Evaluation of Active Labor Market Programmes Enhancing Matching Effectiveness," IZA Discussion Papers 1526, Institute for the Study of Labor (IZA).
  8. Gilles Joseph & Thomas Weitzenblum, 2003. "Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 869-884, October.
  9. Pellizzari, Michele, 2006. "Unemployment duration and the interactions between unemployment insurance and social assistance," Labour Economics, Elsevier, vol. 13(6), pages 773-798, December.

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