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Earnings-Related Unemployment Benefits in a Unionised Economy

  • Goerke, Laszlo

    ()

    (IAAEU, University of Trier)

  • Madsen, Jakob B.

    ()

    (University of Copenhagen)

We show that a stronger earnings relationship of unemployment compensation reduces wages and increases employment in an economy in which wages are determined by a trade union that maximises the rent from unionisation. The opposite result applies for a utilitarian union. Using manufacturing and non-manufacturing data for 16 OECD countries, estimates suggest that a 10% increase in the earnings relationship is associated with a 1.9% fall in manufacturing wages, a 0.6% reduction in non-manufacturing wages and a 7.3% reduction in unemployment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 701.

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Length: 33 pages
Date of creation: Jan 2003
Date of revision:
Publication status: published in: Economic Systems, 2003, 27 (1), 41-62
Handle: RePEc:iza:izadps:dp701
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