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Employment and Welfare Effects of a Two-Tier Unemployment Compensation System

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  • Burkhard Heer

Abstract

In many OECD countries, e.g. in Germany, France, or the UK, unemploy-ment compensation consists of unemployment insurance and unemployment assistance. Unemployment assistance is provided subsequent to the expiration of entitlement to unemployment insurance and is lower. The effects of this two-tier unemployment compensation system are studied in a general equilibrium job search model with endogenous distributions of in-come, wealth, and employment which is calibrated with regard to the charac-teristics of the German economy. Our results are as follows: i) employment is a decreasing function of both unemployment insurance and unemployment assistance. ii) Savings are (not) a monotone increasing function of unemployment insurance (unemployment assistance payments). iii) Optimal unemployment compensation payments are found to be a decreasing function over time.

Suggested Citation

  • Burkhard Heer, 2000. "Employment and Welfare Effects of a Two-Tier Unemployment Compensation System," CESifo Working Paper Series 297, CESifo.
    • Handle: RePEc:ces:ceswps:_297
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    Cited by:

    1. Heer, Burkhard & Trede, Mark, 2003. "Efficiency and distribution effects of a revenue-neutral income tax reform," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 87-107, March.
    2. Burkhard Heer, 2006. "Should Unemployment Benefits Be Related to Previous Earnings?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 530-550, December.
    3. Zou, Tieding, 2017. "延迟退休的制约因素、政策效果与动态研究方法评价 [Restriction, Policy Effect and Dynamic Research Method to Delay Retirement]," MPRA Paper 85556, University Library of Munich, Germany, revised 30 Jan 2018.
    4. Wang, Cheng & Williamson, Stephen, 1996. "Unemployment insurance with moral hazard in a dynamic economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 1-41, June.
    5. Peter Fredriksson & Bertil Holmlund, 2006. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 357-386, July.
    6. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications - Books, The World Bank Group, number 14922.
    7. Andreas Pollak, 2005. "Optimal Unemployment Insurance and Voting," Computational Economics 0505002, University Library of Munich, Germany.
    8. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
    9. Andreas Pollak, 2005. "Optimal Unemployment Insurance in a Search Model with Variable Human Capital," Computing in Economics and Finance 2005 324, Society for Computational Economics.
    10. Burkhard Heer & Albrecht Morgenstern, 2005. "The Labor Market Effects of Indexing Unemployment Benefits to Previous Earnings," Public Finance Review, , vol. 33(3), pages 385-402, May.
    11. Hassler, John & Rodriguez Mora, José V., 2002. "Should UI Benefits Really Fall Over Time?," IZA Discussion Papers 622, Institute of Labor Economics (IZA).
    12. Pollak, Andreas, 2007. "Optimal unemployment insurance with heterogeneous agents," European Economic Review, Elsevier, vol. 51(8), pages 2029-2053, November.
    13. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers and Notes 25529, The World Bank.
    14. Milan Vodopevic, 2004. "Comparing Unemployment Insurance and Unemployment Assistance," World Bank Publications - Reports 11811, The World Bank Group.

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