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A Positive Theory of Unemployment Insurance and Employment Protection

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  • Anesi, Vincent
  • De Donder, Philippe

Abstract

The objective of this paper is to provide a political economy explanation of the empirically observed negative correlation between employment protection and insurance. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria being in the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.

Suggested Citation

  • Anesi, Vincent & De Donder, Philippe, 2009. "A Positive Theory of Unemployment Insurance and Employment Protection," CEPR Discussion Papers 7333, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7333
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    References listed on IDEAS

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    1. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
    2. Woojin Lee & John E. Roemer, 2005. "The Rise and Fall of Unionised Labour Markets: A Political Economy Approach," Economic Journal, Royal Economic Society, vol. 115(500), pages 28-67, January.
    3. Smeets, Valerie & Warzynski, Frederic, 2006. "Job creation, job destruction and voting behavior in Poland," European Journal of Political Economy, Elsevier, vol. 22(2), pages 503-519, June.
    4. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
    5. Daniel Cohen & Arnaud Lefranc & Gilles Saint-Paul, 1997. "French unemployment: a transatlantic perspective," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 265-292, October.
    6. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2012. "The Political Economy Of Flexicurity," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 684-715, August.
    7. Gilles Saint-Paul, 1999. "Assessing the political viability of labor market reform : the case of employment protection," Review, Federal Reserve Bank of St. Louis, issue May, pages 73-87.
    8. Saint-Paul, Gilles, 1998. "A framework for analyzing the political support for active labor market policy," Journal of Public Economics, Elsevier, vol. 67(2), pages 151-165, February.
    9. Pallage, Stephane & Zimmermann, Christian, 2001. "Voting on Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 903-923, November.
    10. Marco Pagano & Paolo F. Volpin, 2005. "The Political Economy of Corporate Governance," American Economic Review, American Economic Association, vol. 95(4), pages 1005-1030, September.
    11. Chung, Yoon-Kyung & Jeong, Jinook, 2008. "Analysis of employment protection laws and unemployment benefits," Economics Letters, Elsevier, vol. 99(1), pages 144-146, April.
    12. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
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    Cited by:

    1. Kjell Erik Lommerud & Odd Rune Straume & Steinar Vagstad, 2012. "Employment protection and unemployment benefits: On technology adoption and job creation in a matching model," NIPE Working Papers 3/2012, NIPE - Universidade do Minho.
    2. 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.
    3. 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.

    More about this item

    Keywords

    bidimensional voting; citizen-candidate; flexicurity; labor market rigidities; party competition;

    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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