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Unemployment Insurance and Market Structure


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  • Nicolas Marceau


This paper examines the impact of unemployment insurance (UI) on employment and unemployment in an industry in which the prices can vary due to some market power or general equilibrium (GE) effects. Some non-conventional results are obtained. First, it is shown that in an industry in which firms have some market power [Cournot competition], average industrial employment may be a decreasing function of the experience-rating because the number of firms in the industry is itself a decreasing function of the experience-rating. This contradicts the conventional view according to which employment should be an increasing function of the experience-rating. Second, the case of an industry characterized by perfect competition and general equilibrium effects on prices is examined. It is shown that the GE effects mitigate the conventional results as well as the one obtained by Burdett and Wright (1989b) [which contradict the conventional view] because those results were obtained in a partial equilibrium framework [fixed prices]. The general conclusion is that for industries with different degrees of market power, the same UI scheme has different impacts on employment and unemployment

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 833.

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Length: 38 pages
Date of creation: Sep 1991
Date of revision:
Handle: RePEc:qed:wpaper:833

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Cited by:
  1. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
  2. Cahuc, Pierre & Malherbet, Franck, 2002. "Unemployment Compensation Finance and Labour Market Rigidity," CEPR Discussion Papers 3512, C.E.P.R. Discussion Papers.


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