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Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable?

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  • Julia Fath
  • Clemens Fuest

Abstract

. This paper explores how the introduction of an experience‐rated system of unemployment insurance affects employment and welfare in a model where implicit contracts between firms and workers give rise to wage rigidities and unemployment. In the literature, it has been argued that experience‐rated systems of unemployment insurance may reduce long‐term employment as firms anticipate the higher costs of layoffs implied by experience rating. Our analysis shows that the introduction of experience rating may increase or decrease long‐term employment but it unambiguously raises welfare.

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  • Julia Fath & Clemens Fuest, 2005. "Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable?," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 471-483, November.
    • Handle: RePEc:bla:germec:v:6:y:2005:i:4:p:471-483
    DOI: 10.1111/j.1468-0475.2005.00142.x
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    References listed on IDEAS

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    1. George A. Akerlof & Hajime Miyazaki, 1980. "The Implicit Contract Theory of Unemployment meets the Wage Bill Argument," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 321-338.
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    3. Burdett, Kenneth & Wright, Randall, 1989. "Optimal firm size, taxes, and unemployment," Journal of Public Economics, Elsevier, vol. 39(3), pages 275-287, August.
    4. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
    5. repec:bla:scandj:v:94:y:1992:i:3:p:479-89 is not listed on IDEAS
    6. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-1496, December.
    7. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    8. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    9. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    10. Julia Fath & Clemens Fuest, 2005. "Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 299-314, June.
    11. Bertil Holmlund, 1998. "Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    12. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-846, December.
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    Cited by:

    1. Florian Baumann & Nikolai Stähler, 2008. "Union Power as a Reason for Europe Not to Introduce Experience Rating?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 568-585, September.
    2. Julia Fath & Clemens Fuest, 2005. "Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 299-314, June.
    3. Sinko, Pekka, 2003. "Subsidizing vs. Experience Rating of Unemployment Insurance in Unionized Labor Markets," Discussion Papers 319, VATT Institute for Economic Research.
    4. repec:ces:ifodic:v:3:y:2005:i:2:p:14567656 is not listed on IDEAS
    5. Adrienne T. Edisis, 2016. "The Effect of Unemployment Insurance on Temporary Help Services Employment," Journal of Labor Research, Springer, vol. 37(4), pages 484-503, December.
    6. José María Arranz & Carlos García Serrano, 2015. "Los sistemas de prestaciones por desempleo de “experience rating”. Un análisis de los despidos temporales y los subsidios cruzados en España," Hacienda Pública Española / Review of Public Economics, IEF, vol. 212(1), pages 129-168, March.
    7. Arranz, José M. & García-Serrano, Carlos, 2020. "Does unemployment benefit duration affect inflows into unemployment? The impact of a law change for older workers," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    8. Julia Fath & Clemens Fuest, 2005. "Experience Rating of Unemployment Insurance in the US: A Model for Europe?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(2), pages 45-50, 07.

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