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A Positive Theory of the Earnings Relationship of Unemployment Benefits

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  • Goerke, Laszlo

    (IAAEU, University of Trier)

  • Pannenberg, Markus

    (Bielefeld University of Applied Sciences)

  • Ursprung, Heinrich W.

    (University of Konstanz)

Abstract

Evidently, the benefit-structure of the unemployment insurance has a significant influence on profits and trade union utility. We show for a wage bargaining model that a stronger earnings relationship of unemployment benefits may reduce wages and increase employment. This raises the question as to how the benefit structure is determined in the political process. To answer this question, we consider a government that chooses the earnings relationship with a view to maximising its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak one when the unions' influence is pronounced. Deepening international economic integration has ambiguous effects. Using panel data for 19 OECD countries from 1961 to 2003 we find support for the hypothesized domestic influences and show that the earnings relationship varies negatively with openness.

Suggested Citation

  • Goerke, Laszlo & Pannenberg, Markus & Ursprung, Heinrich W., 2007. "A Positive Theory of the Earnings Relationship of Unemployment Benefits," IZA Discussion Papers 3003, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3003
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    Cited by:

    1. Mario Mechtel & Niklas Potrafke, 2013. "Electoral cycles in active labor market policies," Public Choice, Springer, vol. 156(1), pages 181-194, July.
    2. Florian Baumann & Nikolai Stähler, 2008. "Union Power as a Reason for Europe Not to Introduce Experience Rating?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 568-585, September.
    3. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    4. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March.
    5. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 14270, University Library of Munich, Germany.
    6. Nikolai Stähler, 2008. "Unemployment and Employment Protection in a Unionized Economy with Search Frictions," LABOUR, CEIS, vol. 22(2), pages 271-289, June.
    7. Moyen, Stéphane & Stähler, Nikolai, 2009. "Unemployment insurance and the business cycle: prolong benefit entitlements in bad times?," Discussion Paper Series 1: Economic Studies 2009,30, Deutsche Bundesbank.

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    More about this item

    Keywords

    unemployment benefits; wage bargaining; political support maximization; panel data; earnings relationship;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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