Alternative ways to organize government subsidies to unemployment insurance (UI) are analyzed in a right-to-manage model where industry level unions run UI funds of their own. It is shown that equilibrium unemployment is decreasing in the share of UI financed by the employed union members. A reduction in the proportional subsidies matched by an increase in the lump sum grant is shown to bring about wage moderation and improve employment. If labor market parties can influence the level of benefits, a subsidy scheme with a fixed assistance per unemployed is preferable to one covering a fixed share of the total UI costs.
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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number
319.
Length: Date of creation: 18 Dec 2003 Date of revision: Handle: RePEc:fer:dpaper:319
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Find related papers by JEL classification: C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
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