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A Positive Theory of the Earnings Relationship of Unemployment Benefits

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Author Info
Laszlo Goerke () (University of Tübingen, CESifo and IZA)
Markus Pannenberg () (DIW Berlin, University of Applied Sciences Bielefeld and IZA)
Heinrich W. Ursprung () (University of Konstanz and CESifo)

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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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Publisher 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:
Handle: RePEc:iza:izadps:dp3003

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

Other versions of this item:

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, 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, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March. [Downloadable!] (restricted)
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