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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:wpaper:348

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Web page: http://www.vwl.uni-oldenburg.de/
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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 & Helm, Carsten, 2011. "Job matching when employment contracts suffer from moral hazard," European Economic Review, Elsevier, vol. 55(7), pages 964-979.
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  18. Demougin, Dominique & Helm, Carsten, 2006. "Moral Hazard and Bargaining Power," Publications of Darmstadt Technical University, Institute of Economics (VWL) 33630, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
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