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Employment Turnover and Unemployment Insurance

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Author Info
Hassler, John
Rodríguez Mora, José Vicente

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Abstract

Two features distinguish European and US labour markets. First, most European countries have a considerably more generous unemployment insurance system. Second, the duration of unemployment and employment spells are substantially higher in Europe – employment turnover is lower. We show that self-insurance, i.e. saving and borrowing, is a good substitute for unemployment insurance when turnover is as high as in the United States. If the insurance system is less than perfectly actuarially fair, the employed median voter will prefer self-insurance to the unemployment insurance system if turnover is high. We also show that high unemployment insurance makes the unemployed more willing to wait for a job with low separation rates. This could make both high turnover/low insurance (US) and low turnover/high insurance (Europe) stable equilibria. Low turnover also leads to a strong divergence between the long- and short-run interests of the employed. In the absence of devices that enable the median voter to bind future voters to some level of insurance, the voting cycle must be long to support a high level of insurance.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1609.

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Date of creation: Mar 1997
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Handle: RePEc:cpr:ceprdp:1609

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Related research
Keywords: Employment Turnover; Unemployment Insurance;

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Find related papers by JEL classification:
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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  2. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  3. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics. [Downloadable!]
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  4. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  5. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  6. Lindbeck, Assar, 1998. "Swedish Lessons for Post-Socialist Countries," Seminar Papers 645, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  7. Lindbeck, Assar & Wikström, Solveig, 1999. "The ICT Revolution in Consumer Product Markets," Seminar Papers 670, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  8. Robert A.J. Dur, 1999. "The Credibility Problem in Unemployment Insurance Policy," Public Economics 9902003, EconWPA. [Downloadable!]
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  9. Lindbeck, Assar, 2000. "Pensions and Contemporary Socioeconomic Change," Seminar Papers 685, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  10. Svensson, Lars, 2000. "The first Year of the Eurosystem: Inflation Targeting or Not?," Seminar Papers 681, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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