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Buffer funding of unemployment insurance in a dynamic labour union model

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Author Info
Marja-Liisa Halko (University of Helsinki, Department of Economics)
Abstract

In this paper we study the implications of the unemployment insurance (UI) financing system on wage levels and employment when labour markets are unionised and the revenues of the firms are stochastic. We use the basic monopoly union approach of wage and employment determination and assume that unemployment benefits are financed by employees’ UI contributions to the union’s UI fund and by the government’s tax revenue. The main focus of this paper is on the effects of UI buffer funding on employment fluctuations. We show that, compared with the pay- as-you-go financing system, buffer funding stabilises the economy by decreasing employment fluctuations where wages are flexible. If wages are rigid, buffer funding stabilises net wage variations, but has hardly any effect on employment fluctuations.

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Paper provided by EconWPA in its series Macroeconomics with number 0404030.

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Date of creation: 27 Apr 2004
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Handle: RePEc:wpa:wuwpma:0404030

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Related research
Keywords: unemployment insurance; unions; stabilisation; buffer funding;

Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
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  1. repec:fth:bfdipa:10/2001 is not listed on IDEAS
  2. Manning, Alan, 1993. " A Dynamic Model of Union Power, Wages and Employment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(2), pages 175-93.
  3. Ripatti, Antti & Vilmunen, Jouko, 2001. "Declining labour share – Evidence of a change in underlying production technology?," Research Discussion Papers 10/2001, Bank of Finland. [Downloadable!]
  4. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Blackwell Publishing, vol. 87(2), pages 160-93.
  5. Holmlund, Bertil & Lundborg, Per, 1996. "Wage Bargaining, Union Membership, and the Organization of Unemployment Insurance," Working Paper Series 1996:17, Uppsala University, Department of Economics.
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  6. Kidd, David P & Oswald, Andrew J, 1987. "A Dynamic Model of Trade Union Behaviour," Economica, London School of Economics and Political Science, vol. 54(215), pages 355-65, August. [Downloadable!] (restricted)
  7. Koskela, Erkki & Schob, Ronnie, 1999. "Does the composition of wage and payroll taxes matter under Nash bargaining?," Economics Letters, Elsevier, vol. 64(3), pages 343-349, September. [Downloadable!] (restricted)
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  8. Leach, John, 1997. "Inventories and Wage Bargaining," Journal of Economic Theory, Elsevier, vol. 75(2), pages 433-463, August. [Downloadable!] (restricted)
  9. Holmlund, Bertil & Lundborg, Per, 1989. "Unemployment insurance schemes for reducing the natural rate of unemployment," Journal of Public Economics, Elsevier, vol. 38(1), pages 1-15, February. [Downloadable!] (restricted)
  10. Coles, Melvyn G & Hildreth, Andrew K G, 2000. "Wage Bargaining, Inventories, and Union Legislation," Review of Economic Studies, Blackwell Publishing, vol. 67(2), pages 273-93, April.
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  11. Coles, Melvyn & Smith, Eric, 1998. "Strategic bargaining with firm inventories," Journal of Economic Dynamics and Control, Elsevier, vol. 23(1), pages 35-54, September. [Downloadable!] (restricted)
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  12. Gary Chamberlain & Charles A. Wilson, 2000. "Optimal Intertemporal Consumption Under Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 365-395, July. [Downloadable!] (restricted)
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