IDEAS home Printed from https://ideas.repec.org/p/igi/igierp/239.html
   My bibliography  Save this paper

Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?

Author

Listed:
  • Tito Boeri
  • J.Ignacio Conde-Ruiz
  • Vincenzo Galasso

Abstract

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. The mix of quantity restrictions and price regulations adopted by the various countries would seem to correspond to a stable politico-economic equilibrium. We develop a model in which voters are required to cast a ballot over the strictness of EPL and over the generosity of UB. Agents are heterogeneous along two dimensions: employment status — there are insiders and outsiders — and skills — low and high skills. We show that if there exists a majority of low-skill insiders, the voting game has a politico-economic equilibrium with low UB and high EPL; otherwise, the equilibrium features high UB and low EPL. Another testable implication of the model is that a larger share of elderly workers increases the demand for EPL. Panel data on institutions and on the age and educational structures of the populations are broadly in line with our results. We also find that those favouring EPL over UB in a public opinion poll carried in 2001 in Italy have precisely the same characteristics predicted by our model.

Suggested Citation

  • Tito Boeri & J.Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?," Working Papers 239, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:239
    as

    Download full text from publisher

    File URL: https://repec.unibocconi.it/igier/igi/wp/2003/239.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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. 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.
    3. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February.
    4. Acemoglu, Daron & Shimer, Robert, 2000. "Productivity gains from unemployment insurance," European Economic Review, Elsevier, vol. 44(7), pages 1195-1224, June.
    5. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    6. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    7. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    8. Conde-Ruiz, Jose Ignacio & Galasso, Vincenzo, 2005. "Positive arithmetic of the welfare state," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 933-955, June.
    9. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001. "Deunionization, technical change and inequality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264, December.
    10. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
    11. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
    12. Saint-Paul, Gilles, 2000. "The Political Economy of Labour Market Institutions," OUP Catalogue, Oxford University Press, number 9780198293323, Decembrie.
    13. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
    14. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392, Elsevier.
    15. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-265, April.
    16. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January.
    17. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
    18. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 08-50.
    19. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
    20. Marco Buti & André Sapir (ed.), 2002. "EMU and Economic Policy in Europe," Books, Edward Elgar Publishing, number 2871, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated". "Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection," Working Papers 2004-26, FEDEA.
    2. 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.
    3. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2017. "Inside severance pay," Journal of Public Economics, Elsevier, vol. 145(C), pages 211-225.
    4. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
    5. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    6. repec:hal:spmain:info:hdl:2441/7hh2up94ii8d2rg9pa9vg9eh3t is not listed on IDEAS
    7. Boeri, Tito & Macis, Mario, 2008. "Do Unemployment Benefits Promote or Hinder Structural Change?," IZA Discussion Papers 3371, Institute of Labor Economics (IZA).
    8. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    9. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries [Appropriate growth policy: a unifying framework]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(58), pages 349-402.
    10. Goerke, Laszlo & Neugart, Michael, 2015. "Lobbying and dismissal dispute resolution systems," International Review of Law and Economics, Elsevier, vol. 41(C), pages 50-62.
    11. van Ours, Jan C. & Boone, Jan & Belot, Michèle, 2002. "Welfare Effects of Employment Protection," CEPR Discussion Papers 3396, C.E.P.R. Discussion Papers.
    12. Bassanini, Andrea & Garnero, Andrea, 2013. "Dismissal protection and worker flows in OECD countries: Evidence from cross-country/cross-industry data," Labour Economics, Elsevier, vol. 21(C), pages 25-41.
    13. Yu‐Fu Chen & Dennis Snower & Gylfi Zoega, 2003. "Labour‐market Institutions and Macroeconomic Shocks," LABOUR, CEIS, vol. 17(2), pages 247-270, June.
    14. Ravi Balakrishnan, 2001. "The interaction of firing costs and on-the-job search: an application of a search theoretic model to the Spanish labour market," Working Papers 0102, Banco de España.
    15. Nadav Ben Zeev & Tomer Ifergane, 2022. "Firing Restrictions and Economic Resilience: Protect and Survive?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 93-124, January.
    16. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2880-2942.
    17. Pissarides, Christopher, 2002. "Consumption and savings with unemployment risk: implications for optimal employment contracts," LSE Research Online Documents on Economics 2211, London School of Economics and Political Science, LSE Library.
    18. Tiiu Paas & Marit Hinnosaar & Jaan Masso & Orsolya Szirko, 2004. "Social Protection Systems In The Baltic States," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 26, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    19. Kugler, Adriana & Saint-Paul, Gilles, 2000. "Hiring and Firing Costs, Adverse Selection and Long-term Unemployment," IZA Discussion Papers 134, Institute of Labor Economics (IZA).
    20. Booth, Alison L. & Zoega, Gylfi, 2003. "On the welfare implications of firing costs," European Journal of Political Economy, Elsevier, vol. 19(4), pages 759-775, November.
    21. Bukowski, Maciej & Lewandowski, Piotr & Koloch, Grzegorz & Baranowska, Anna & Magda, Iga & Szydlowski, Arkadiusz & Bober, Magda & Bieliński, Jacek & Zawistowski, Julian & Sarzalska, Malgorzata, 2008. "Employment in Poland 2007: Security on flexible labour market," MPRA Paper 14284, University Library of Munich, Germany.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:igi:igierp:239. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.igier.unibocconi.it/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.