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Unemployment Compensation and High European Unemployment: A Reassessment with New Benefit Indicators

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  • David R. Howell
  • Miriam Rehm

Abstract

Generous unemployment benefits lie at the heart of the conventional explanation for persistent high unemployment. The effects of benefit generosity are more ambiguous in a broader behavioral framework in which workers get substantial disutility from unemployment controlling for income, and know that unemployment has scarring effects in the future. The micro evidence suggests modest effects of changes in generosity, but there are reasons to doubt that the impacts on national unemployment rates are consequential. The strongest evidence for the orthodox prediction comes from cross-country regressions on the OECD’s gross replacement rate (GRR), but we find little support in the pattern of annual changes in the GRR and the unemployment rate for OECD countries over the last three decades. We take advantage of newly released and much improved net replacement rate indicators from the OECD, which show little correlation with either the GRRs or with unemployment and employment rates. The evidence does not offer compelling support for the view that benefit generosity is at the root of high European unemployment. ��

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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp201.

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Date of creation: 2009
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Handle: RePEc:uma:periwp:wp201

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  1. Hur jobbskatteavdraget skapar jobb
    by Roger Mo?rtvik in Utredarna on 2009-09-22 19:20:12
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Cited by:
  1. Simon Sturn, 2011. "Labour market regimes and unemployment in OECD countries," IMK Working Paper 6-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  2. Rodríguez-Pose, Andrés & Tselios, Vassilis, 2011. "Welfare regimes and the incentives to work and get educated," CEPR Discussion Papers 8187, C.E.P.R. Discussion Papers.
  3. Goerke, Laszlo & Pannenberg, Markus & Ursprung, Heinrich W., 2007. "A Positive Theory of the Earnings Relationship of Unemployment Benefits," IZA Discussion Papers 3003, Institute for the Study of Labor (IZA).
  4. Sachs, Andreas & Schleer, Frauke, 2013. "Labour market performance in OECD countries: A comprehensive empirical modelling approach of institutional interdependencies," ZEW Discussion Papers 13-040, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(3), pages 545-571, September.
  6. Josef C Brada & Marcello Signorelli, 2012. "Comparing Labor Market Performance: Some Stylized Facts and Key Findings," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 231-250, June.
  7. Simon STURN, 2013. "Are corporatist labour markets different? Labour market regimes and unemployment in OECD countries," International Labour Review, International Labour Organization, vol. 152(2), pages 237-254, 06.
  8. David R. Howell, 2010. "Institutions, Aggregate Demand and Cross-Country Employment Performance: Alternative Theoretical Perspectives and the Evidence," Working Papers wp228, Political Economy Research Institute, University of Massachusetts at Amherst.

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