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Dynamic Wage Bargaining if Benefits are Tied to Individual Wages

  • Beissinger, Thomas

    ()

    (University of Hohenheim)

  • Egger, Hartmut

    ()

    (University of Bayreuth)

In dynamic wage bargaining models it is usually assumed that individual unemployment benefits are a fraction of the average wage level. In most countries, however, unemployment benefits are instead tied to the previous level of individually earned wages. We show how the analysis has to be modified if this fact is taken into account and compare our findings for the wage-setting curve with outcomes under other unemployment compensation schemes. In particular, we show that the widely used vertical wage-setting curve relies on more restrictive assumptions than usually considered. We also demonstrate that a reduction of unemploy-ment benefits of those who get unemployed after the bargaining period leads to higher equilibrium unemployment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 389.

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Length: 25 pages
Date of creation: Nov 2001
Date of revision:
Publication status: published in: Oxford Economic Papers, 2004, 56 (3), 437-460
Handle: RePEc:iza:izadps:dp389
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  1. Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
  2. Layard, R. & Nickell, S., 1988. "Is Unemployment Lower If Unions Bargain Over Employment?," Papers 308, London School of Economics - Centre for Labour Economics.
  3. Manning, Alan, 1991. "The Determinants of Wage Pressure: Some Implications of a Dynamic Model," Economica, London School of Economics and Political Science, vol. 58(231), pages 325-39, August.
  4. Hoel, Michael, 1991. "Union Wage Policy: The Importance of Labour Mobility and the Degree of Centralization," Economica, London School of Economics and Political Science, vol. 58(230), pages 139-53, May.
  5. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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