Unemployment Risks and the Origins of Unemployment Compensation

Abstract

This paper focuses on the distribution of sectoral unemployment risks and the role of political regimes in the foundational moments of unemployment compensation. The institutionalization of unemployment compensation is a function of two factors. First, it depends on the distribution of unemployment risks by economic sectors. Second, the effect of risk inequality is conditional upon the political regime type. I employ event history analysis of 144 countries throughout the world for the long historical period from 1880 to 2000. The results show that an overall societal level of unemployment risk and inequality of sectoral unemployment risks in a society are positively associated with the likelihood of the institutionalization of unemployment compensation. In addition, the effect of risk inequality is much higher under democracy than under dictatorship. A broader implication is that the creation of unemployment compensation is not only a function of homogeneous working class power but also a function of working class conflict that stems from the heterogeneity of unemployment risks among workers.