Institutional incentives to prevent unemployment: Unemployment insurance and active labor market policy in a comparative perspective

Abstract

In response to the industrial revolution, two important institutions have been established to deal with labor market failures—unemployment insurance (UI) and active labor market policy (ALMP). The actual forms which these two institutions take is a matter of each country's process of institutional choice. The purpose of this article is to demonstrate the variety of choices actually taken and to suggest ways of evaluating those choices. The article presents detailed descriptions of UI and ALMP schemes found in Europe, Japan, and the United States. The analysis suggests three general guidelines for making “good institutional choices”— bounded requisite variety, institutional consistency and coherence, and flexible coordination of institutional equivalences.