Abstract
The basic trade union model is generalized to allow for an unemployment benefit system consisting of two benefit levels, one for short-term and one for long-term unemployed, and a rule determining whether an unemployed is short- or long-term. Under relatively mild conditions we show that benefit systems with no or positive duration dependence are dominated by a system with negative duration dependence in the sense that all union members achieve higher utility, unemployment is lower, and benefit expenditures are smaller.
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