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Incentive Contracts and Efficient Unemployment Benefits in a Globalized World

Author

Listed:
  • Carsten Helm

    () (University of Oldenburg)

  • Dominique Demougin

    () (European Business School at the EBS University, Wiesbaden)

Abstract

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyse this issue in a principal-agent model, higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Suggested Citation

  • Carsten Helm & Dominique Demougin, 2012. "Incentive Contracts and Efficient Unemployment Benefits in a Globalized World," Working Papers V-348-12, University of Oldenburg, Department of Economics, revised Aug 2012.
  • Handle: RePEc:old:dpaper:348
    as

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    File URL: http://www.vwl.uni-oldenburg.de/download/V-348-12.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Unemployment benefits; incentive contracts; Nash bargaining; moral hazard; globalization;

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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