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Unemployment Insurance and Labor Reallocation

Author

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  • Franck Malherbet

    (Crest)

  • Mustafa Ulus

    (Crest)

Abstract

In this paper, an equilibrium search-and-matching model of a segmented labormarket has been developed to assess the effects of unemployment insuranceand its financing on labor allocation across heterogeneous economic sectors (industries).Heterogeneity stems from different rates of labor turnover and levelsof productivity. The model has been applied to Turkey, which is currently introducingan unemployment insurance system. The results can be extended toa wide range of countries however. Our analysis leads us to argue that with apayroll taxation system, more generous unemployment payments increase theimplicit subsidy to volatile sectors, which in turn leads a flow of workers to thesesectors. Conversely, a switch from a payroll tax system to an experience-ratedsystem makes it possible to reduce the implicit lay-off subsidy. This in turn stabilizesemployment by reducing the size of the volatile sectors. Furthermore, ithas been proved that experience rating has a non-trivial effect on total output.

Suggested Citation

  • Franck Malherbet & Mustafa Ulus, 2003. "Unemployment Insurance and Labor Reallocation," Working Papers 2003-17, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2003-17
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 457-475.
    2. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
    3. Cahuc, Pierre & Malherbet, Franck, 2004. "Unemployment compensation finance and labor market rigidity," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 481-501, March.
    4. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
    5. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    6. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    7. Olivier L'Haridon & Franck Malherbet, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," Working Papers 2002-48, Center for Research in Economics and Statistics.
    8. Topel, Robert & Welch, Finis, 1980. "Unemployment Insurance: Survey and Extensions," Economica, London School of Economics and Political Science, vol. 47(187), pages 351-379, August.
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    Cited by:

    1. Olivier Charlot & Franck Malherbet & Mustafa Ulus, 2016. "Unemployment Compensation and the Allocation of Labor in Developing Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 385-416, June.
    2. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(02), pages 45-50, July.
    3. repec:ces:ifodic:v:3:y:2005:i:2:p:14567656 is not listed on IDEAS
    4. José María Arranz & Carlos García Serrano, 2015. "Los sistemas de prestaciones por desempleo de “experience rating”. Un análisis de los despidos temporales y los subsidios cruzados en España," Hacienda Pública Española / Review of Public Economics, IEF, vol. 212(1), pages 129-168, March.
    5. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(2), pages 45-50, 07.

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