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Voting on Unemployment Insurance Generosity

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Abstract

In this paper, we show that in a dynamic general equilibrium economy, the presence of moral hazard need not induce large cuts in optimal unemployment insurance benefits when agents are asked to vote on these benefits. We find that it takes a quite large proportion of "shirkers" to bend the generosity of the unemployment insurance program desired by the median voter. This result stands in sharp contrast to the extant literature. In addtion to their differences in asset holdings, agents in our economy are heterogeneous in skills and may differ in their wage as well as in their transition in and out of unemployment. Our results have important implications in the light of recent unemployment insurance reforms. Dans cette étude, nous montrons que le risque moral joue un maigre rôle dans la détermination de la générosité de l'assurance chômage optimale lors d'un vote. Dans une économie d'équilibre général dynamique, nous trouvons que seule la présence d'un nombre très important d'abuseurs conduit à une perte significative de générosité dans les allocations d'assurance chômage. Ce résultat va à l'encontre de la littérature existante. En plus de différences dans les actifs détenus, les agents modélisés diffèrent dans leurs habiletés, ce qui se traduit par des différences de salaires et de probabilités de chômage. Ces résultats peuvent avoir des conséquences importantes au vu des réformes récentes de l'assurance chômage.

Suggested Citation

  • Stephane Pallage & Christian Zimmermann, 1998. "Voting on Unemployment Insurance Generosity," Cahiers de recherche CREFE / CREFE Working Papers 64, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:64
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    References listed on IDEAS

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    Cited by:

    1. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, pages 1683-1710.
    2. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
    3. Stephane Pallage & Christian Zimmermann, 1999. "Heterogeneous Labor Markets and the Generosity Towards the Unemployed: An International Perspective," Cahiers de recherche CREFE / CREFE Working Papers 88, CREFE, Université du Québec à Montréal.

    More about this item

    Keywords

    Unemployment Insurance; Shirking; Heterogeneity; Voting;

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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