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Premium differentiation in the unemployment insurance system and the demand for labor

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Author Info
Alessie, R.
Bloemen, H. (Tilburg University, Center for Economic Research)

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Abstract

In this study we investigate the effect of the introduction of premium differentiation (experience rating) in the Dutch Unemployment Insurance system on the demand for labor. We formulate a model of labor demand, based on the model by Bentolila and Bertola (1990), in which we distinguish two types of workers: the "young" and the "old". This distinction is made, as one of the major motives for opening the discussion around premium differentiation in the Netherlands is the wish to reduce the inflow of older workers into unemployment. In the model, labor adjustment costs (hiring and firing costs) are linear. The model allows for uncertainty in the business cycle. Premium differentiation is incorporated in the model as a rise in firing costs, accompanied by a decrease in unemployment insurance premium payments. Values for the model parameters are determined to quantify the effect of premium differentiation on the demand for labor in various sectors of the Dutch economy. We compute the effect of premium differentiation on the steady state level of labor demand. We also compute the effect of premium differentiation on the level of profits.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 11.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200011

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Keywords: premium differentiation

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Find related papers by JEL classification:
J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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  1. Hamermesh, Daniel S., 1987. "The demand for labor in the long run," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 8, pages 429-471 Elsevier. [Downloadable!] (restricted)
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  2. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522 Elsevier. [Downloadable!] (restricted)
  3. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  4. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September. [Downloadable!] (restricted)
  5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  6. A Carruth & M Hooker & A Oswald, 1994. "Unemployment," CEP Discussion Papers 0188, Centre for Economic Performance, LSE.
  7. Risager, Ole & Sorensen, Jan Rose, 1997. "On the effects of firing costs when investment is endogenous: An extension of a model by Bertola," European Economic Review, Elsevier, vol. 41(7), pages 1343-1353, July. [Downloadable!] (restricted)
  8. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June. [Downloadable!] (restricted)
  9. Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
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  10. Burda, Michael C., 1991. "Monopolistic competition, costs of adjustment, and the behavior of European manufacturing employment," European Economic Review, Elsevier, vol. 35(1), pages 61-79, January. [Downloadable!] (restricted)
  11. Bertola, Giuseppe & Caballero, Ricardo J, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 435-56, July. [Downloadable!] (restricted)
  12. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-43, September. [Downloadable!] (restricted)
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