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Employment Turnover and Unemployment Insurance

Author

Listed:
  • Hassler, John

    () (Institute for International Economic Studies, Stockholm University)

  • Rodríguez Mora, José V.

    () (Department of Economics, Universitat Pompeu Fabra)

Abstract

Two features distinguish European and US labor markets. First, most European countries have substantially more generous unemployment insurance. Second, the duration of unemployment and employment spells are substantially higher in Europe - employment turnover is lower. We show that self-insurance, i.e., saving and borrowing, is a good substitute for unemployment insurance when turnover is high as in the US. If the insurance system is less than perfectly actuarially fair, the employed median voter will prefer to self-insure instead of having unemployment insurance if turnover is high. We also show that high unemployment insurance make unemployed more willing to wait for a job with low separation rates. This could make both high turnover/low insurance (US) and low turnover/high insurance (Europe) stable equilibria. Low turnover also leads to a strong divergence between the long and short run interest of the employed. In abscence of devices such that the median voter can bind future voters to some level of insurance, the voting cycle must thus be long in order to support a high level of insurance.

Suggested Citation

  • Hassler, John & Rodríguez Mora, José V., 1997. "Employment Turnover and Unemployment Insurance," Seminar Papers 623, Stockholm University, Institute for International Economic Studies.
  • Handle: RePEc:hhs:iiessp:0623
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    Cited by:

    1. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    2. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
    3. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
    4. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    5. Assar Lindbeck, 2002. "Pensions and Contemporary Socioeconomic Change," NBER Chapters,in: Social Security Pension Reform in Europe, pages 19-48 National Bureau of Economic Research, Inc.
    6. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
    7. Robert A. J. Dur, 2001. "The Credibility Problem in Unemployment Insurance Policy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 634-634, December.
    8. Lindbeck, A., 1998. "Swedish Lessons for Post-Socialist Countries," Papers 645, Stockholm - International Economic Studies.
    9. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies.
    10. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
    11. Lindbeck, A. & Wikstrom, S., 1999. "The ICT Revoluation in Consumer Product Markets," Papers 670, Stockholm - International Economic Studies.

    More about this item

    Keywords

    labor markets; unemployment insurance; employment turnover; self-insurance; median voter; stable equilibria;

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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