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A coalitional theory of unemployment insurance and employment protection

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  • Vincent Anesi

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  • Philippe De Donder

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Abstract

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria belonging to the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit. Copyright Springer-Verlag 2013

Suggested Citation

  • Vincent Anesi & Philippe De Donder, 2013. "A coalitional theory of unemployment insurance and employment protection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 941-977, April.
  • Handle: RePEc:spr:joecth:v:52:y:2013:i:3:p:941-977 DOI: 10.1007/s00199-011-0671-1
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    References listed on IDEAS

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    Cited by:

    1. Lommerud, Kjell Erik & Straume, Odd Rune & Vagstad, Steinar, 2012. "Employment protection and unemployment benefits: on technology adoption and job creation in a matching model," Working Papers in Economics 18/12, University of Bergen, Department of Economics.

    More about this item

    Keywords

    Bidimensional voting; Party competition; Citizen-candidate; Coalition formation; Labor market rigidities; D72; J65; J68;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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