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Unemployment Insurance, Wage Dynamics and Inequality over the Life Cycle

  • Bingley, Paul


    (Danish National Centre for Social Research (SFI))

  • Cappellari, Lorenzo


    (Università Cattolica del Sacro Cuore)

  • Westergård-Nielsen, Niels C.


    (Copenhagen Business School)

We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. While we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance, robustness checks suggest that moral hazard is the relevant interpretation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7128.

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Length: 56 pages
Date of creation: Jan 2013
Date of revision:
Publication status: published in: Economic Journal, 2013, 123 (568), 341–372
Handle: RePEc:iza:izadps:dp7128
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