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Incentive Contracts and Efficient Unemployment Benefits

  • Dominique Demougin
  • Carsten Helm

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the works position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated works affect this trade-off.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-06/cesifo1_wp2670.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2670.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2670
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  1. Albert van der Horst, 2003. "Structural Estimates of Equilibrium Unemployment in Six OECD Economies," Economics Working Papers 022, European Network of Economic Policy Research Institutes.
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  27. Fredriksson, P. & Holmlund, B., 1998. "Optimal Unemployment Insurance in Search Equilibrium," Papers 1998-2, Uppsala - Working Paper Series.
  28. Jacobi, Lena & Kluve, Jochen, 2007. "Before and after the Hartz reforms: The performance of active labour market policy in Germany," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(1), pages 45-64.
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