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Cross-Skill Redistribution and the Trade-Off Between Unemployment Benefits and Employment Protection

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Author Info
Boeri, Tito
Conde-Ruiz, José Ignacio
Galasso, Vincenzo

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Abstract

We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labour market risk. Different countries’ locations along this trade-off represent stable, hard to modify, politico-economic equilibria. We develop a model in which voters are required to cast a ballot over the strictness of EPL, the generosity of UBs and the amount of redistribution involved by the financing of unemployment insurance. Agents are heterogeneous along two dimensions: employment status – insiders and outsiders – and skills – low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing among insiders, notably in favour of the low-skill workers. A key implication of the model is that configurations with strict EPL and low UB should emerge in presence of compressed wage structures. Micro data on wage premia on educational attainments and on the strictness of EPL are in line with our results. We also find empirical support to the substantive assumptions of the model on the effects of EPL.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4711.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4711

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Related research
Keywords: employment protection; political equilibria; unemployment insurance;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Saint-Paul, Gilles, 1999. "The Political Economy of Employment Protection," CEPR Discussion Papers 2109, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June. [Downloadable!] (restricted)
  3. Gilles Saint-Paul, 1999. "Assessing the political viability of labor market reform : the case of employment protection," Review, Federal Reserve Bank of St. Louis, issue May, pages 73-87. [Downloadable!]
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  4. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," NBER Working Papers 7352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001. "Deunionization, technical change and inequality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264, December. [Downloadable!] (restricted)
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  6. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  7. Andrew E. Clark & Fabien Postel-Vinay, 2004. "Job security and job protection," DELTA Working Papers 2004-16, DELTA (Ecole normale supérieure). [Downloadable!]
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  8. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Ljungqvist, Lars & Sargent, Thomas J, 2002. "The European Employment Experience," CEPR Discussion Papers 3543, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314.
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  12. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May. [Downloadable!] (restricted)
  13. Bertola, Giuseppe & Rogerson, Richard, 1996. "Institutions and Labour Reallocation," CEPR Discussion Papers 1519, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 1999. "Positive Arithmetic of the Welfare State," CEPR Discussion Papers 2202, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
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  16. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 7-50, 04. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alka Obadić, 2009. "Examining the Danish flexicurity labour market concept," EFZG Working Papers Series 0904, Faculty of Economics and Business, University of Zagreb. [Downloadable!]
  2. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March. [Downloadable!] (restricted)
  3. Clark, Andrew E & Postel-Vinay, Fabien, 2005. "Job Security and Job Protection," CEPR Discussion Papers 4927, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. R.A. de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memoranda 100, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  5. María A. Davia & Óscar D. Marcenaro-Gutiérrez, 2007. "Exploring the link between employment search time and reservation wages in Southern Europe," Economic Working Papers at Centro de Estudios Andaluces E2007/13, Centro de Estudios Andaluces. [Downloadable!]
  6. Laszlo Goerke & Markus Pannenberg & Heinrich W. Ursprung, 2007. "A Positive Theory of the Earnings Relationship of Unemployment Benefits," IZA Discussion Papers 3003, Institute for the Study of Labor (IZA). [Downloadable!]
  7. W. Stanley Siebert, 2006. "Labour Market Regulation in the EU-15: Causes and Consequences - A Survey," IZA Discussion Papers 2430, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Nikolai Stähler, 2005. "Employment protection : its effects on different skill groups and on the incentive to become skilled," Working Papers of the Research Group Heterogenous Labor 05-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
    Other versions:
  9. Namkee Ahn, . "Life Satisfaction among Spanish Workers: Importance of Intangible Job Characteristics," Working Papers 2005-17, FEDEA. [Downloadable!]
  10. Ana Carolina Ortega Masagué, . "La situación laboral de los inmigrantes en España: Un análisis descriptivo," Working Papers 2005-08, FEDEA. [Downloadable!]
  11. María Angeles Davia & Oscar D. Marcenaro Gutiérrez, 2008. "Exploring the link between employment search time and reservation," Hacienda Pública Española, IEF, vol. 186(3), pages 91-121, October. [Downloadable!]
  12. Namkee Ahn & Juan Ramón García & José A. Herce, . "Demographic Uncertainty and Health Care Expenditure in Spain," Working Papers 2005-07, FEDEA. [Downloadable!]
  13. Corinne Mette, . "Wellbeing and dependency among European elderly: The role of social integration," Working Papers 2005-12, FEDEA. [Downloadable!]
  14. Algan, Yann & Cahuc, Pierre, 2006. "Civic Attitudes and the Design of Labour Market Institutions: Which Countries Can Implement the Danish Flexicurity Model?," CEPR Discussion Papers 5489, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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