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Measuring Unemployment Insurance Generosity

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  • Stéphane Pallage
  • Lyle Scruggs
  • Christian Zimmermann

Abstract

Unemployment insurance policies are multidimensional objects. They are typically defined by waiting periods, eligibility duration, benefit levels and asset tests when eligible, which make intertemporal or international comparisons difficult. To make things worse, labor market conditions, such as the likelihood and duration of unemployment matter when assessing the generosity of different policies. In this paper, we develop a methodology to measure the generosity of unemployment insurance programs with a single metric. We build a first model with such complex characteristics. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model that is similar, except that the unemployment insurance is simpler: it is deprived of waiting periods and agents are eligible forever with constant benefits. We then determine which level of benefits in this second model makes agents indifferent between both unemployment insurance policies. We apply this strategy to the unemployment insurance program of the United Kingdom and study how its generosity evolved over time.

Suggested Citation

  • Stéphane Pallage & Lyle Scruggs & Christian Zimmermann, 2009. "Measuring Unemployment Insurance Generosity," Cahiers de recherche 0921, CIRPEE.
  • Handle: RePEc:lvl:lacicr:0921
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    References listed on IDEAS

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    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
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    4. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
    5. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    6. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    7. Pallage, Stephane & Zimmermann, Christian, 2005. "Heterogeneous labor markets and generosity towards the unemployed: an international perspective," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 88-106, March.
    8. Pallage, Stephane & Zimmermann, Christian, 2001. "Voting on Unemployment Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 903-923, November.
    9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    10. Heckman James J., 2007. "Comments on Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence by David Howell, Dean Baker, Andrew Glyn, and John Schmitt," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-5, August.
    11. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
    12. James P. Allan & Lyle Scruggs, 2004. "Political Partisanship and Welfare State Reform in Advanced Industrial Societies," American Journal of Political Science, John Wiley & Sons, vol. 48(3), pages 496-512, July.
    13. Lyle Scruggs, 2006. "The Generosity of Social Insurance, 1971--2002," Oxford Review of Economic Policy, Oxford University Press, vol. 22(3), pages 349-364, Autumn.
    14. Howell David R. & Baker Dean & Glyn Andrew & Schmitt John, 2007. "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-73, May.
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    Citations

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    Cited by:

    1. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.
    2. Fabre, Alice & Pallage, Stéphane, 2015. "Child labor, idiosyncratic shocks, and social policy," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 394-411.
    3. Stéphane Pallage & Lyle Scruggs & Christian Zimmermann, 2009. "Unemployment Insurance Generosity: A Transatlantic Comparison," Annals of Economics and Statistics, GENES, issue 95-96, pages 15-23.
    4. David R. Howell & Miriam Rehm, 2009. "Unemployment compensation and high European unemployment: a reassessment with new benefit indicators," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 60-93, Spring.
    5. Amine Samir, 2016. "The Canadian Unemployment Insurance Generosity: Reflections from a Comparative Analysis," Comparative Economic Research, Sciendo, vol. 19(3), pages 133-145, September.
    6. Samia BENALLAH & Carole BONNET & Claire El MOUDDEN & Antoine MATH, 2012. "Comment Mesurer La "Générosité" Des Systèmes De Retraite ? Une Application Aux Pays De La Méditerranée," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 35, pages 215-234.

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    More about this item

    Keywords

    Social policy; generosity; unemployment insurance; measurement;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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