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Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?

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Author Info
Boeri, Tito () (IGIER, University of Bocconi, Fondazione Rodolfo Debenedetti and IZA Bonn)
Conde-Ruiz, J. Ignacio (FEDEA)
Galasso, Vincenzo (IGIER, University of Bocconi and CEPR)

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Abstract

We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labour market risk. The mix of quantity restrictions and price regulations adopted by the various countries would seem to correspond to a stable politico-economic equilibrium. We develop a model in which voters are required to cast a ballot over the strictness of EPL and over the generosity of UB. Agents are heterogeneous along two dimensions: employment status - there are insiders and outsiders - and skills - low and high skills. We show that if there exists a majority of low-skill insiders, the voting game has a politico-economic equilibrium with low UB and high EPL; otherwise, the equilibrium features high UB and low EPL. Another testable implication of the model is that a larger share of elderly workers increases the demand for EPL. Panel data on institutions and on the age and educational structures of the populations are broadly in line with our results. We also find that those favouring EPL over UB in a public opinion poll carried in 2001 in Italy have precisely the same characteristics predicted by our model.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 834.

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Length: 42 pages
Date of creation: Jul 2003
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Handle: RePEc:iza:izadps:dp834

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Related research
Keywords: employment protection unemployment insurance political equilibria

Other versions of this item:

Find related papers by JEL classification:
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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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.:
  1. Saint-Paul, Gilles, 1999. "The Political Economy of Employment Protection," CEPR Discussion Papers 2109, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," NBER Working Papers 7352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001. "Deunionization, technical change and inequality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264, December. [Downloadable!] (restricted)
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  4. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  6. Saint-Paul, Gilles, 1999. "Assessing the Political Viability of Labour Market Reform: The Case of Employment Protection," CEPR Discussion Papers 2136, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
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  10. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 1999. "Positive Arithmetic of the Welfare State," CEPR Discussion Papers 2202, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December. [Downloadable!] (restricted)
  12. P Garibaldi, 1995. "Job Flow Dynamics and Firing Restrictions," CEP Discussion Papers 0256, Centre for Economic Performance, LSE.
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  13. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
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  14. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October. [Downloadable!] (restricted)
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  15. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 7-50, 04. [Downloadable!] (restricted)
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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. Herbert Buscher & Christian Dreger & Raul Ramos & Jordi Surinach, 2005. "The Impact of Institutions on the Employment Performance in European Labour Markets," IZA Discussion Papers 1732, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Federica Origo & Laura Pagani, 2008. "Flexicurity and Workers Well-Being in Europe: Is Temporary Employment Always Bad?," Working Papers 141, University of Milano-Bicocca, Department of Economics, revised Jun 2008. [Downloadable!]
  3. M. Magnani, 2005. "Labour market regulation and retirement age," Economics Department Working Papers 2005-EP02, Department of Economics, Parma University (Italy). [Downloadable!]
  4. Simón Sosvilla Rivero & Oscar Bajo Rubio & Carmen Díaz Roldán, . "Sobre la efectividad de la política regional comunitaria: El caso de Castilla-la Mancha," Working Papers 2003-25, FEDEA. [Downloadable!]
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  5. Algan, Yann & Cahuc, Pierre, 2004. "Job Protection: The Macho Hypothesis," IZA Discussion Papers 1192, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Björn Brügemann, 2006. "Does Employment Protection Create Its Own Political Support?," IZA Discussion Papers 2286, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Werner Eichhorst & Regina Konle-Seidl, 2005. "The Interaction of Labor Market Regulation and Labor Market Policies in Welfare State Reform," IZA Discussion Papers 1718, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," Boston College Working Papers in Economics 663, Boston College Department of Economics, revised 08 Aug 2008. [Downloadable!]
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  9. Tito Boeri, 2005. "Reforming Labor and Product Markets: Some Lessons from Two Decades of Experiments in Europe," IMF Working Papers 05/97, International Monetary Fund. [Downloadable!]
  10. Eichhorst, Werner & Feil, Michael & Braun, Christoph, 2008. "What have we learned? Assessing labor market institutions and indicators," IAB Discussion Paper 200822, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
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  11. Boeri, Tito & Brandolini, Andrea, 2005. "The Age of Discontent: Italian Households at the Beginning of the Decade," IZA Discussion Papers 1530, Institute for the Study of Labor (IZA). [Downloadable!]
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  12. José A. Herce, . "Could this ever happen in Spain? Economic and policy aspects of a SARS-like episode," Working Papers 2004-09, FEDEA. [Downloadable!]
  13. Marie-Laure Michaud, 2004. "Welfare and the Labour Market in the EU," Occasional Papers 07, European Network of Economic Policy Research Institutes. [Downloadable!]
  14. Laszlo Goerke & Markus Pannenberg & Heinrich W. Ursprung, 2007. "A Positive Theory of the Earnings Relationship of Unemployment Benefits," IZA Discussion Papers 3003, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Juan Prieto & Juan Gabriel Rodríguez & Rafael Salas, . "Polarization, Inequality and Tax Reforms," Working Papers 2003-23, FEDEA. [Downloadable!]
  16. Saltari Enrico & Tilli Riccardo, 2006. "Do Labor Market Conditions Affect the Strictness of Employment Protection Legislation?," Departmental Working Papers 240, Tor Vergata University, CEIS. [Downloadable!]
  17. Algan, Yann & Cahuc, Pierre, 2006. "Civic Attitudes and the Design of Labour Market Institutions: Which Countries Can Implement the Danish Flexicurity Model?," CEPR Discussion Papers 5489, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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