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On the Extent of Re-Entitlement Effects in Unemployment Compensation

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Author Info
Ortega, Javier
Rioux, Laurence

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Abstract

A dynamic labour matching economy is presented, in which the unemployed are either entitled to unemployment insurance (UI) or unemployment assistance (UA), and the employees are either eligible for UI or UA upon future separations. Eligibility for UI requires a minimum duration of contributions and UI benefits are then paid for a limited duration. Workers are risk-averse and wages are determined in a bilateral Nash bargain. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. Most of the variables and parameters of the model are estimated using the French sample of the European Community Household Panel (1994-2000). We show that extending the UI entitlement improves the situation of all groups of workers and slightly lowers unemployment, while raising UI benefits harms the unemployed on assistance and raises unemployment. Easier eligibility for UI also improves the situation of all groups of workers and favours relatively more the least well-off than longer entitlement. Unifying the French unemployment compensation system would raise both wages and unemployment by around 1.5%. The re-entitlement effect in France lowers by 8% the rise in the wage and by 13% the rise in unemployment following a 10% increase in UI benefits.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5826.

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Date of creation: Sep 2006
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Handle: RePEc:cpr:ceprdp:5826

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Related research
Keywords: matching re-entitlement effects unemployment compensation

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Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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    Other versions:
  3. Michele Pellizzari, . "Unemployment Duration and the Interactions Between Unemployment Insurance and Social Assistance," Working Papers 272, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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    Other versions:
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  7. Melvyn Coles & Adrian Masters, 2004. "Duration-Dependent Unemployment Insurance Payments and Equilibrium Unemployment," Economica, London School of Economics and Political Science, vol. 71, pages 83-97, 02. [Downloadable!] (restricted)
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  9. Dale T. Mortensen, 1977. "Unemployment Insurance and Labor Supply Decisions," Discussion Papers 271, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  12. Schmitt, John & Wadsworth, Jonathan, 1993. "Unemployment Benefit Levels and Search Activity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 1-24, February.
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  14. Wang, Cheng & Williamson, Stephen D., 2002. "Moral Hazard, Optimal Unemployment Insurance and Experience Rating," Staff General Research Papers 10133, Iowa State University, Department of Economics.
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  15. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
    Other versions:
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