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A Positive Theory of the Earnings Relationship of Unemployment Benefits

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Author Info

  • Goerke, Laszlo

    () (IAAEG, 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3003.

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Length: 31 pages
Date of creation: Aug 2007
Date of revision:
Publication status: published in: Public Choice, 2010, 145 (1-2), 137-163
Handle: RePEc:iza:izadps:dp3003

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Keywords: unemployment benefits; wage bargaining; political support maximization; panel data; earnings relationship;

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References

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Citations

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Cited by:
  1. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March.
  2. Mario Mechtel & Niklas Potrafke, 2011. "Electoral Cycles in Active Labor Market Policies," Working Paper Series of the Department of Economics, University of Konstanz 2011-39, Department of Economics, University of Konstanz.
  3. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 22780, University Library of Munich, Germany, revised May 2010.
  4. Potrafke, Niklas, 2009. "Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006," MPRA Paper 23751, University Library of Munich, Germany.
  5. 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, Research Centre.

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