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Incentive Contracts and Efficient Unemployment Benefits in a Globalized World

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  • Carsten Helm

    ()
    (University of Oldenburg)

  • Dominique Demougin

    ()
    (European Business School at the EBS University, Wiesbaden)

Abstract

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyse this issue in a principal-agent model, higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

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File URL: http://www.vwl.uni-oldenburg.de/download/V-348-12.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by University of Oldenburg, Department of Economics in its series Working Papers with number V-348-12.

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Length: 22 pages
Date of creation: Aug 2012
Date of revision: Aug 2012
Publication status: Published in Oldenburg Working Papers V-348-12
Handle: RePEc:old:dpaper:348

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Keywords: Unemployment benefits; incentive contracts; Nash bargaining; moral hazard; globalization;

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References

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  1. Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
  2. Anne Gielen & Marcel Kerkhofs & Jan Ours, 2010. "How performance related pay affects productivity and employment," Journal of Population Economics, Springer, vol. 23(1), pages 291-301, January.
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  4. Saint-Paul, Gilles, 2004. "Why are European Countries Diverging in their Unemployment Experience?," IDEI Working Papers 269, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Brown, Eleanor & Kaufold, Howard, 1988. "Human Capital Accumulation and the Optimal Level of Unemployment Insurance Provision," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 493-514, October.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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  9. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, April.
  10. Noel Gaston & Douglas Nelson, 2004. "Structural Change and the Labor-market Effects of Globalization," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 769-792, November.
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  13. repec:iab:iabzaf:v:40:i:1:p:45-64 is not listed on IDEAS
  14. Dominique Demougin & Carsten Helm, 2006. "Moral Hazard and Bargaining Power," German Economic Review, Verein für Socialpolitik, vol. 7, pages 463-470, November.
  15. Hervé Boulhol, 2006. "Do capital market and trade liberalization trigger labor market deregulation ?," Cahiers de la Maison des Sciences Economiques bla06062, Université Panthéon-Sorbonne (Paris 1).
  16. Jacobi, Lena & Kluve, Jochen, 2007. "Before and after the Hartz reforms: The performance of active labour market policy in Germany," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(1), pages 45-64.
  17. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
  18. Jonathan Haskel & Robert Z. Lawrence & Edward E. Leamer & Matthew J. Slaughter, 2012. "Globalization and U.S. Wages: Modifying Classic Theory to Explain Recent Facts," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 119-40, Spring.
  19. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  20. Demougin, Dominique & Helm, Carsten, 2011. "Job matching when employment contracts suffer from moral hazard," European Economic Review, Elsevier, vol. 55(7), pages 964-979.
  21. Michel Dumont & Glenn Rayp & Peter Willemé, 2006. "Does internationalization affect union bargaining power? An empirical study for five EU countries," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 77-102, January.
  22. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
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