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Employment Turnover and Unemployment Insurance

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  • Hassler, John
  • Rodríguez Mora, José Vicente

Abstract

Two features distinguish European and US labour markets. First, most European countries have a considerably more generous unemployment insurance system. Second, the duration of unemployment and employment spells are substantially higher in Europe – employment turnover is lower. We show that self-insurance, i.e. saving and borrowing, is a good substitute for unemployment insurance when turnover is as high as in the United States. If the insurance system is less than perfectly actuarially fair, the employed median voter will prefer self-insurance to the unemployment insurance system if turnover is high. We also show that high unemployment insurance makes the unemployed more willing to wait for a job with low separation rates. This could make both high turnover/low insurance (US) and low turnover/high insurance (Europe) stable equilibria. Low turnover also leads to a strong divergence between the long- and short-run interests of the employed. In the absence of devices that enable the median voter to bind future voters to some level of insurance, the voting cycle must be long to support a high level of insurance.

Suggested Citation

  • Hassler, John & Rodríguez Mora, José Vicente, 1997. "Employment Turnover and Unemployment Insurance," CEPR Discussion Papers 1609, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1609
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    Cited by:

    1. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
    2. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
    3. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    4. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
    5. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    6. Robert A. J. Dur, 2001. "The Credibility Problem in Unemployment Insurance Policy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 634-634, December.
    7. Lindbeck, A., 1998. "Swedish Lessons for Post-Socialist Countries," Papers 645, Stockholm - International Economic Studies.
    8. Assar Lindbeck, 2002. "Pensions and Contemporary Socioeconomic Change," NBER Chapters,in: Social Security Pension Reform in Europe, pages 19-48 National Bureau of Economic Research, Inc.
    9. Lindbeck, A. & Wikstrom, S., 1999. "The ICT Revoluation in Consumer Product Markets," Papers 670, Stockholm - International Economic Studies.
    10. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies.
    11. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.

    More about this item

    Keywords

    Employment Turnover; Unemployment Insurance;

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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