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On the Extent of Re-Entitlement Effects in Unemployment Compensation

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  • Ortega, Javier

    ()
    (City University London)

  • Rioux, Laurence

    ()
    (CREST-INSEE)

Abstract

A dynamic labor 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. The re-entitlement effect in France lowers by 10% the rise in the wage and by 13% the rise in unemployment following a 10% increase in benefit levels.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2807.

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Length: 28 pages
Date of creation: May 2007
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Handle: RePEc:iza:izadps:dp2807

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Keywords: unemployment compensation; matching; re-entitlement effects;

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References

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  21. Laurence Rioux, 2001. "Salaire de réserve, allocation chômage dégressive et revenu minimum d'insertion," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 346(1), pages 137-160.
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Cited by:
  1. Anne Lauringson, 2011. "Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 25-50, July.
  2. Lorenzo Corsini, 2011. "On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy," Discussion Papers, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy 2011/119, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  3. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, Elsevier, vol. 19(6), pages 888-897.

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