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On the Extent of Re-Entitlement Effects in Unemployment Compensation

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  • Javier Ortega
  • Laurence Rioux

Abstract

A dynamic labor matching economy is presented, in which the unemployed are either entitled to unemployment insurance (UI) or unemployment assistance (UA), and the employees are either eligible for UI or UA upon future separations. Eligibility for UI requires a minimum duration of contributions and UI benefits are then paid for a limited duration. Workers are risk-averse and wages are determined in a bilateral Nash bargain. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. Most of the variables and parameters of the model are estimated using the French sample of the European Community Household Panel (1994-2000). We show that extending the UI entitlement improves the situation of all groups of workers and slightly lowers unemployment, while raising UI benefits harms the unemployed on assistance and raises unemployment. Easier eligibility fo r UI also improves the situation of all groups of workers and favors relatively more the least well-off than longer entitlement. The re-entitlement effect in France lowers by 10% the rise in the wage and by 13% the rise in unemployment following a 10% increase in benefit levels.

Suggested Citation

  • Javier Ortega & Laurence Rioux, 2008. "On the Extent of Re-Entitlement Effects in Unemployment Compensation," CEP Discussion Papers dp0846, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0846
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    Cited by:

    1. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    2. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, vol. 19(6), pages 888-897.
    3. Moyen, Stéphane & Stähler, Nikolai, 2014. "Unemployment Insurance And The Business Cycle: Should Benefit Entitlement Duration React To The Cycle?," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 497-525, April.
    4. Anne Lauringson, 2011. "Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 25-50, July.
    5. Lorenzo Corsini, 2011. "On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy," Discussion Papers 2011/119, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    6. Andersen, Torben M. & Kristoffersen, Mark Strøm & Svarer, Michael, 2018. "Benefit reentitlement conditions in unemployment insurance schemes," Labour Economics, Elsevier, vol. 52(C), pages 27-39.

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    More about this item

    Keywords

    re-entitlement effects; unemployment compensation; matching;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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