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Unemployment Compensation Finance and Aggregate Employment Fluctuations

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  • L'Haridon, Olivier
  • Malherbet, Franck

Abstract

Experience rating which is often treated as a simple adjustment cost is an original feature of the US unemployment benefit system. This Paper extensively addresses the effect of experience rating as an alternative to standard job protection. We provide a simple matching model of unemployment that handles both idiosyncratic and aggregate shocks. In such a framework, we show that experience rating tends to increase labour market performances. Indeed, moving toward an experience rated system tends to stabilize employment. Additionally, for reasonable parameter values average employment and production are increased over the cycle. Therefore, it may be worthwhile to shift standard job protection measures toward a more experience rated system.

Suggested Citation

  • L'Haridon, Olivier & Malherbet, Franck, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," CEPR Discussion Papers 3614, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3614
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    References listed on IDEAS

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    1. Olivier L'Haridon & Franck Malherbet, 2001. "Job Protection and Aggregate Employment Fluctuations : A Reappraisal," Working Papers 2001-36, Center for Research in Economics and Statistics.
    2. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    3. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    4. Dale Mortensen & Christopher Pissarides, 1992. "The Cyclical Behavior of Job Creation and Job Destruction," Discussion Papers 982, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-959, November.
    6. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February.
    7. Dominique Goux & Eric Maurin, 2000. "Labor Market Institutions and Job Stability. A Firm-Level Analysis of Layoff Risk for High and Low-Seniority Workers," Working Papers 2000-29, Center for Research in Economics and Statistics.
    8. Cahuc, Pierre & Zylberberg, André, 1999. "Job protection, minimum wage and employment," CEPREMAP Working Papers (Couverture Orange) 9914, CEPREMAP.
    9. Cahuc, Pierre & Malherbet, Franck, 2004. "Unemployment compensation finance and labor market rigidity," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 481-501, March.
    10. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc.
    11. Rocheteau, Guillaume, 1999. "Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 399-409, July.
    12. Christiano, Lawrence J, 1990. "Solving the Stochastic Growth Model by Linear-Quadratic Approximation and by Value-Function Iteration," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 23-26, January.
    13. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
    14. David Margolis & Denis Fougère, 2000. "Moduler les cotisations employeurs à l'assurance-chômage : les expériences de bonus-malus aux Etats-Unis," Revue Française d'Économie, Programme National Persée, vol. 15(2), pages 3-76.
    15. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-957, October.
    16. Katherine Baicker & Claudia Goldin & Lawrence F. Katz, 1998. "A Distinctive System: Origins and Impact of U.S. Unemployment Compensation," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 227-264 National Bureau of Economic Research, Inc.
    17. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.
    18. Patricia M. Anderson, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1015-1042.
    19. repec:crs:wpaper:9938 is not listed on IDEAS
    20. Albrecht, James W & Vroman, Susan B, 1999. "Unemployment Compensation Finance and Efficiency Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 141-167, January.
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    Cited by:

    1. Breiding, Torsten, 2006. "Die Arbeitslosenversicherung in Deutschland – Beitrag zur Bekämpfung oder Ursache von Arbeitslosigkeit
      [The unemployment insurance in Germany - does it cause or does it help to overcome unemploymen
      ," MPRA Paper 20999, University Library of Munich, Germany.
    2. Florian Baumann & Nikolai Stähler, 2008. "Union Power as a Reason for Europe Not to Introduce Experience Rating?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 568-585, September.
    3. Olivier l'Haridon, 2005. "Financement des politiques du marché du travail et protection de l'emploi," Économie et Prévision, Programme National Persée, vol. 168(2), pages 43-62.

    More about this item

    Keywords

    employment fluctuation; experience rating; job protection; matching models;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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