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On the extent of re-entitlement effects in unemployment compensation

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  • Ortega, Javier
  • Rioux, Laurence

Abstract

We analyze the implications of two-tier unemployment compensation systems with non-automatic eligibility in an equilibrium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, re-entitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease in benefits over time, and a longer employment duration required for UI eligibility than in the current system.

Suggested Citation

  • Ortega, Javier & Rioux, Laurence, 2010. "On the extent of re-entitlement effects in unemployment compensation," Labour Economics, Elsevier, vol. 17(2), pages 368-382, April.
    • Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:368-382
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    Cited by:

    1. Laura Khoury & Clément Brébion & Simon Briole, 2019. "Entitled to Leave: the Impact of Unemployment Insurance Eligibility on Employment Duration and Job Quality," Working Papers halshs-02393383, HAL.
    2. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    3. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, vol. 19(6), pages 888-897.
    4. Moyen, Stéphane & Stähler, Nikolai, 2014. "Unemployment Insurance And The Business Cycle: Should Benefit Entitlement Duration React To The Cycle?," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 497-525, April.
    5. Anne Lauringson, 2011. "Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 25-50, July.
    6. Lorenzo Corsini, 2011. "On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy," Discussion Papers 2011/119, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Andersen, Torben M. & Kristoffersen, Mark Strøm & Svarer, Michael, 2018. "Benefit reentitlement conditions in unemployment insurance schemes," Labour Economics, Elsevier, vol. 52(C), pages 27-39.

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    More about this item

    Keywords

    Re-entitlement effects Unemployment compensation Matching;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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