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Unemployment Compensation Finance and Aggregate Employment Fluctuations

  • L'Haridon, Olivier
  • Malherbet, Franck

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3614.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3614
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  1. repec:fth:inseep:2001-37 is not listed on IDEAS
  2. 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.
  3. 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 933-59, November.
  4. 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.
  5. 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, Centre de Recherche en Economie et Statistique.
  6. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  7. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  8. repec:fth:inseep:2001-36 is not listed on IDEAS
  9. 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.
  10. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  11. Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1015-42, November.
  12. Pierre Cahuc & André Zylberberg, 1999. "Job Protection, Minimum Wage and Unemployment," Working Papers 99-38, Centre de Recherche en Economie et Statistique.
  13. Cahuc, Pierre & Postel-Vinay, Fabien, 2001. "Temporary Jobs, Employment Protection and Labor Market Performance," IZA Discussion Papers 260, Institute for the Study of Labor (IZA).
  14. 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.
  15. 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.
  16. repec:fth:inseep:9938 is not listed on IDEAS
  17. Denis Fougère & David Margolis, 2000. "Moduler les cotisations employeurs à l’assurance chômage : les expériences de bonus-malus aux Etats-Unis," Working Papers 2000-16, Centre de Recherche en Economie et Statistique.
  18. 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.
  19. 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 141-67, January.
  20. Olivier L'Haridon & Franck Malherbet, 2001. "Job Protection and Aggregate Employment Fluctuations : A Reappraisal," Working Papers 2001-36, Centre de Recherche en Economie et Statistique.
  21. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October.
  22. 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.
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