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Buffer funding of unemployment insurance in a dynamic labour union model

Author

Listed:
  • Marja-Liisa Halko

    (University of Helsinki, Department of Economics)

Abstract

In this paper we study the implications of the unemployment insurance (UI) financing system on wage levels and employment when labour markets are unionised and the revenues of the firms are stochastic. We use the basic monopoly union approach of wage and employment determination and assume that unemployment benefits are financed by employees’ UI contributions to the union’s UI fund and by the government’s tax revenue. The main focus of this paper is on the effects of UI buffer funding on employment fluctuations. We show that, compared with the pay- as-you-go financing system, buffer funding stabilises the economy by decreasing employment fluctuations where wages are flexible. If wages are rigid, buffer funding stabilises net wage variations, but has hardly any effect on employment fluctuations.

Suggested Citation

  • Marja-Liisa Halko, 2004. "Buffer funding of unemployment insurance in a dynamic labour union model," Macroeconomics 0404030, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0404030
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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