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Cross-Skill Redistribution and the Trade-Off Between Unemployment Benefits and Employment Protection


  • Boeri, Tito
  • Conde-Ruiz, José Ignacio
  • Galasso, Vincenzo


We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labour market risk. Different countries’ locations along this trade-off represent stable, hard to modify, politico-economic equilibria. We develop a model in which voters are required to cast a ballot over the strictness of EPL, the generosity of UBs and the amount of redistribution involved by the financing of unemployment insurance. Agents are heterogeneous along two dimensions: employment status – insiders and outsiders – and skills – low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing among insiders, notably in favour of the low-skill workers. A key implication of the model is that configurations with strict EPL and low UB should emerge in presence of compressed wage structures. Micro data on wage premia on educational attainments and on the strictness of EPL are in line with our results. We also find empirical support to the substantive assumptions of the model on the effects of EPL.

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  • Boeri, Tito & Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2004. "Cross-Skill Redistribution and the Trade-Off Between Unemployment Benefits and Employment Protection," CEPR Discussion Papers 4711, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4711

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    References listed on IDEAS

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    Cited by:

    1. Heinemann Friedrich & Bischoff Ivo & Hennighausen Tanja, 2009. "Choosing from the Reform Menu Card – Individual Determinants of Labour Market Policy Preferences," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(2-3), pages 180-197, April.
    2. Algan, Yann & Cahuc, Pierre, 2005. "Civic attitudes and the Design of Labor Market Institutions? Which Countries can Implement the Danish Flexicurity Model?," CEPREMAP Working Papers (Docweb) 0517, CEPREMAP.
    3. Ana Carolina Ortega Masagué, "undated". "La situación laboral de los inmigrantes en España: Un análisis descriptivo," Working Papers 2005-08, FEDEA.
    4. Corinne Mette, "undated". "Wellbeing and dependency among European elderly: The role of social integration," Working Papers 2005-12, FEDEA.
    5. Anna Zasova, 2011. "Labour market institutions: an obstacle or support to Latvian labour market recovery?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 5-24, July.
    6. Alka Obadić, 2009. "Examining the Danish flexicurity labour market concept," EFZG Working Papers Series 0904, Faculty of Economics and Business, University of Zagreb.
    7. Andrew Clark & Fabien Postel-Vinay, 2009. "Job security and job protection," Oxford Economic Papers, Oxford University Press, vol. 61(2), pages 207-239, April.
    8. Ferrante, Francesco & Ruiu, Gabiele, 2014. "Entrepreneurship. How important are institutions and culturally-based prior beliefs?," MPRA Paper 41915, University Library of Munich, Germany.
    9. Stähler Nikolai, 2006. "Employment Protection: Its Effects on Different Skill Groups and on the Incentive to become Skilled," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 226(1), pages 41-54, February.
    10. Pierre Cahuc & Yann Algan, 2009. "Civic Virtue and Labor Market Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 111-145, January.
    11. Siebert, W. Stanley, 2006. "Labour Market Regulation in the EU-15: Causes and Consequences – A Survey," IZA Discussion Papers 2430, Institute for the Study of Labor (IZA).
    12. María Angeles Davia & Oscar D. Marcenaro Gutiérrez, 2008. "Exploring the link between employment search time and reservation," Hacienda Pública Española, IEF, vol. 186(3), pages 91-121, October.
    13. Michael Neugart, 2008. "The choice of insurance in the labor market," Public Choice, Springer, vol. 134(3), pages 445-462, March.
    14. Laszlo Goerke & Markus Pannenberg & Heinrich Ursprung, 2010. "A positive theory of the earnings relationship of unemployment benefits," Public Choice, Springer, vol. 145(1), pages 137-163, October.
    15. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 545-571, September.
    16. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    17. María A. Davia & Óscar D. Marcenaro-Gutiérrez, 2007. "Exploring the link between employment search time and reservation wages in Southern Europe," Economic Working Papers at Centro de Estudios Andaluces E2007/13, Centro de Estudios Andaluces.
    18. Namkee Ahn, "undated". "Life Satisfaction among Spanish Workers: Importance of Intangible Job Characteristics," Working Papers 2005-17, FEDEA.
    19. Namkee Ahn & Juan Ramón García & José A. Herce, "undated". "Demographic Uncertainty and Health Care Expenditure in Spain," Working Papers 2005-07, FEDEA.
    20. Ochsen, Carsten & Welsch, Heinz, 2012. "Who benefits from labor market institutions? Evidence from surveys of life satisfaction," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 112-124.
    21. repec:spo:wpecon:info:hdl:2441/8811 is not listed on IDEAS

    More about this item


    employment protection; political equilibria; unemployment insurance;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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