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The Joint Design of Unemployment Insurance and Employment Protection. A First Pass Author info | Abstract | Publisher info | Download info | Related research | Statistics Blanchard, Olivier J
Tirole, Jean
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Unemployment insurance and employment protection are typically discussed and studied in isolation. ln this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk averse workers, risk neutral firms, and random shocks to productivity. We show that, in the 'first best', unemployment insurance comes with employment protection - in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex-post wage bargaining, and ex-ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
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Date of creation: Feb 2007Date of revision:
Handle: RePEc:cpr:ceprdp:6127Contact details of provider: Postal: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG Phone: 44 - 20 - 7183 8801 Fax: 44 - 20 - 7183 8820
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Keywords: employment protection ; experience rating ; layoff taxes ; layoffs ; severance payments ; unemployment benefits ; Unemployment insurance ; Other versions of this item:
Find related papers by JEL classification: D60 - Microeconomics - - Welfare Economics - - - General E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
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