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Cross-Skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection

Author

Listed:
  • Boeri, Tito

    (Bocconi University)

  • Conde-Ruiz, J. Ignacio

    (FEDEA, Madrid)

  • Galasso, Vincenzo

    (Bocconi University)

Abstract

We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labor 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.

Suggested Citation

  • Boeri, Tito & Conde-Ruiz, J. Ignacio & Galasso, Vincenzo, 2004. "Cross-Skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection," IZA Discussion Papers 1371, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1371
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    References listed on IDEAS

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    More about this item

    Keywords

    employment protection; unemployment insurance; political equilibria;
    All these keywords.

    JEL classification:

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

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