Abstract
Standard results in the area of unemployment insurance suggest that experience rating is beneficial because it confronts firms with layoff costs and reduces unem ployment. This article presents a different perspective, suggesting that experience rating may increase involuntary unemployment. A simple model that combines elements of efficiency wage and insider-outsider hypotheses is used to address the issues. Results show that experience rating causes significant wage and unemploy ment effects. Thus, standard conclusions in the experience-rating literature may not easily carry over to models of involuntary unemployment. From a policy perspective, this article suggests that costs and benefits of experience rating should be carefully evaluated, especially when unemployment is involuntary.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have