Buffer funding of unemployment insurance in a dynamic labour union model
AbstractIn 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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Date of creation: 27 Apr 2004
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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, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
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