Public Unemployment Insurance Research Articles

Swedish unions and obligatory complementary income insurance: Securing unemployment benefits in a changing welfare state

AbstractUntil the 2000s, the Ghent system of state‐supported, union‐run funds contributed to high union density in Sweden. However, there has been a remodelling of the Ghent system and a gradual erosion of public unemployment insurance. In this new institutional and less universal context, unions have introduced the private complement known as obligatory complementary income insurance (OCII). This article seeks answers to how Swedish unions have thought and argued on OCII, how these thoughts and arguments change over time and whether there are differences across unions within different confederations. The material includes congressional minutes and other internal documents as well as newspapers and union magazines, 2000–2020. There is a myriad of arguments for and against OCII. Many unions highlight the eroded public unemployment insurance—arguably a threat both to individuals and collectives—as the prime trigger of OCII. Yet, for unions with high rates of unemployment and relatively high wages, the OCII premium may be too expensive. Further, some unions argue that high‐wage members are subsidised by low‐wage members. We also find that OCII enhances sharp competition between unions to keep and recruit new members. The material also reveals different union opinions on how OCII is affecting the future of the welfare model.

Talent discovery, layoff risk and unemployment insurance

In talent-intensive jobs, workers’ quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. We show that, if firms compete for talent, they cannot insure workers against this risk, so that the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Our model predicts that public unemployment insurance corrects this inefficiency, increasing employment in talent-sensitive industries. This prediction is consistent with the distribution of U.S. employment across occupations and states. Unemployment insurance dominates legal restrictions on firms’ dismissals, which penalize more talent-sensitive firms and thus depress expected productivity.

Transformation of the Ghent System in Sweden: Silent Institutionalization of Complementary ­Unemployment­ Benefits

The Swedish public unemployment insurance program is characterized by its governance structure involving union-linked insurance funds, famously known as the Ghent system. This paper argues that the unions’ strongly entrenched interest in the provision of unemployment benefits has continued to shape the establishment and expansion of complementary benefits for the unemployed in multiple forms, including bilateral Employment Transition Agreements between employers’ organizations and unions (occupational pillar) and privately provided complementary income insurance benefits mediated by unions (private pillar). The paper accounts for this multi-pillarization process of the Swedish unemployment benefit provision system and how the unions’ involvement has come to take multiple forms. The paper also discusses distributive implication of this union-led development of the complementary pillars, which reinforces the differences in risk protection between different occupational groups and sectors.

Distributive Consequences of Risk Privatization: The Case of the Swedish Unemployment Insurance System

AbstractThe public unemployment insurance program in Sweden has retrenched in terms of its benefit generosity in the last three decades. As a response to this trend, in which an ever-smaller proportion of the previous income of unemployed persons is compensated by public unemployment insurance benefit, complementary income insurance schemes provided by unions have expanded rapidly in the last 15 years, currently covering one half of the working population. What does this change mean for people who need income protection upon unemployment and are more likely to find themselves unemployed or underemployed? By analyzing survey-based benefit recipiency data among retail workers who were unemployed in 2014, this article explores the outcomes of the multi-pillarized unemployment benefit provision system in Sweden. While public unemployment insurance benefit does not fully compensate for the income loss for the majority of retail workers, the promise of a complementary income insurance scheme seems to be illusory for many individuals as they repeatedly oscillate between precarious work and benefits, accompanied by the burden of navigating a complex system.

Unemployment insurance and cash holdings of privately held firms around the world

AbstractResearch Question/IssueThis paper studies the relationship between country‐level unemployment insurance and cash holdings of privately held firms. When public unemployment insurance is weak, firms may provide alternative unemployment insurance by committing not to lay off workers in bad times. We hypothesize that one way firms can do so is by holding larger cash balances.Research Findings/InsightsUsing a large sample covering 388,940 private firms from 32 countries around the world over the 2007–2014 period, we find a negative relationship between public unemployment insurance and cash holdings. This effect is driven by countries where public unemployment insurance is weak or nonexistent. We also find that privately held firms keep a larger part of their new debt issues as cash when public unemployment insurance is weak.Theoretical/Academic ImplicationsWe contribute to a growing literature on an institution‐based view of comparative corporate governance. We show that national governance factors and, more specifically, public unemployment insurance, which protects employees (an important but relatively ignored stakeholder), influences firm cash holdings in a private firm context.Practitioner/Policy ImplicationsOur findings have important implications for policy design. Specifically, they suggest that labor market institutions designed to support employees can also indirectly benefit their employers because these institutions allow firms to reduce the opportunity cost related to holding larger cash balances.

Talent Discovery, Layoff Risk and Unemployment Insurance

In talent-intensive jobs, workers' quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. Firms cannot insure workers against this risk if they compete fiercely for talent. In this case, the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries, consistently with international evidence. Unemployment insurance dominates legal restrictions on firms' dismissals, which penalize more talent-sensitive firms and thus depress expected productivity. Finally, unemployment insurance fosters education, by encouraging investment in risky human capital that enhances talent discovery.

Employment and Wage Insurance within Firms: Worldwide Evidence

Using a firm-level international panel data set, we study if unemployment insurance offered by the government and by firms are substitutes. We exploit cross-country and time-series variation in public unemployment insurance as a shifter of workers’ demand for insurance within firms, and family versus nonfamily ownership as a shifter of firms’ supply of insurance. Our evidence supports the substitutability hypothesis: employment stability in family firms is greater, and the wage discount larger, in countries and periods with less generous public unemployment insurance, whereas no such substitutability emerges for nonfamily firms. Received July 18, 2015; editorial decision August 8, 2017 by Editor Francesca Cornelli.

Talent Discovery, Layoff Risk and Unemployment Insurance

In talent-intensive jobs, workers’quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk.Firms cannot insure workers against this risk if they compete fiercely for talent. In this case, the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries and investment in education. The hypothesis that the generosity of unemployment insurance should be positively correlated with the share of workers in talent-sensitive industries is consistent with international and U.S. evidence.

Der Flexibilitätsbeitrag in der Arbeitslosenversicherung

The controversy around fixed-term contracts centres around the conflict between the employer’s need for flexibility and the employee’s need for security. The authors propose flexible contributions for employers to the public unemployment insurance system to balance both interests. The employers’ contributions for their temporary staff would increase while the contributions for their permanent staff would in turn decrease slightly. The authors calculate four versions. With regards to the total sum of contributions, the first version holds the contributions received constant while the second version leads to a reduction. They then repeat these two calculations for fixed-term contracts without substantive grounds. The flexibility premium takes into account the higher unemployment risk of employees with fixed-term contracts and establishes monetary incentives for employers to hire employees with permanent contracts.

Welfare Effects of Short-Time Compensation

We study welfare effects of public short-time compensation (STC) in a model in which firms respond to idiosyncratic profitability shocks by adjusting employment and hours per worker. Introducing STC substantially improves welfare by mitigating distortions caused by public unemployment insurance (UI), but only if firms have access to private insurance. Otherwise firms respond to low profitability by combining layoffs with long hours for remaining workers, rather than by taking up STC. Optimal STC is substantially less generous than UI even when firms have access to private insurance, and equally generous STC is worse than not offering STC at all.

Die EU als Solidargemeinschaft

In light of a theory of recognition, a source of solidarity based on labor division is examined. This approach can help to mitigate the shortcomings of other sources of solidarity. Following an analysis of the primacy of market integration, the European Trade Union as well as European public unemployment insurance are discussed as institutional means to put this source of solidarity into practice.

Who Helps the Unemployed? Young Workers' Receipt of Private Cash Transfers

Financial transfers provided to individuals from friends and family members in times of need are difficult to measure, yet the role of private, informal assistance in determining economic outcomes is important to identify, as private transfers may serve as a source of insurance for households. In this paper, I use longitudinal data from the Panel Study of Income Dynamics (PSID) to measure the extent to which an unemployment spell increases the likelihood that a young worker receives a cash transfer from family. Using within-person variation in unemployment and cash transfer receipt, I find that unemployment increases the probability a young worker receives financial assistance from their family by 50 percent. I then use cross-state and cross-year variation in public unemployment insurance eligibility to evaluate the relationship between the informal private insurance flowing to young unemployed workers and its public counterpart. The increase in the probability of receiving a family transfer is reduced by half if the worker is eligible for unemployment insurance. Hence, my paper provides evidence that family-provided insurance responds to income shocks but is also a function of available public insurance. This implies that the trend towards stricter UI eligibility is partially absorbed by family networks.

A Policy Analysis on Endogenous Fertility and Unemployment

This study analyzes how a social security system consisting of a public pension, child allowances, and unemployment insurance affects endogenous fertility and unemployment when the wage level is endogenously set by monopolistic trade unions in an overlapping generations model (OLG) model. The analysis reveals that, first, increased pension tax rates lead to a higher fertility rate when wages are higher but a lower rate when wages are lower. Second, an increased child allowances tax rate leads to an increased fertility rate when wages are lower but a decreased rate when wages are higher. Therefore, both social security and wage setting should be considered in order to improve fertility and reduce unemployment.

Voluntary Public Unemployment Insurance

Voluntary Public Unemployment Insurance

Voluntary Public Unemployment Insurance

Denmark has drawn much attention for its active labor market policies, but is almost unique in offering a voluntary public unemployment insurance program requiring a significant premium payment. A safety net program--a less generous, means-tested social assistance plan—completes the system. The voluntary system emerged as one of many European “Ghent systems,” essentially government subsidized trade union plans, but has since lost many key features of such plans. We assess system performance using a 10% sample of the Danish population drawn from administrative data. Coverage rates for the voluntary programs are surprisingly high, approximately 80 percent of the workforce, but the program has predictable selection effects, including adverse selection across risk classes and a substantial charity hazard (low coverage among those with generous treatment under the safety net program). The latter appears to explain the difficulty of shifting to a compulsory system; redistribution effects would be concentrated among the previously uninsured in the lowest decile of the income distribution, a problem in the Danish welfare state.

Employment and Wage Insurance within Firms: Worldwide Evidence

We investigate the determinants of firms’ implicit insurance to employees, using a difference-in-difference approach: we rely on differences between family and non-family firms to identify the supply of insurance, and exploit variation in unemployment insurance across and within countries to gauge workers’ demand for insurance. Using a firm-level panel from 41 countries, we find that family firms feature more stable employment, greater wage flexibility and lower labor cost than non-family ones. Employment stability in family firms is greater, and the wage discount larger, in countries with more generous public unemployment insurance: private and public provision of employment insurance are substitutes.

Fiscal Policy, Chartal Money, Mark‐up Dynamics and Unemployment Insurance in a Model of Growth and Distribution

AbstractGiven one parameter restriction, an output‐stabilization rule for the provision of public services turns a Kaldor–Kalecki–Steindl growth model with unstable, catastrophe‐prone dynamics into one with a stable limit cycle. In contrast, using a budget‐balancing rule produces a saddle point, along with closed orbits near the boundaries of the state space. Adding Kaleckian mark‐up dynamics destabilizes the equilibrium, with a spiraling path followed by a spin‐out found in simulation. A final exercise establishes the possibility of adding a variable workforce and a public unemployment insurance system. Throughout, an identity governs the dynamics of the stocks of public financial liabilities.

Unemployment and portfolio choice: Does persistence matter?

Households can rely on private savings or on public unemployment insurance to hedge against the risk of becoming unemployed. These hedging mechanisms are used differently across countries. In this paper, we use a life cycle model to study the effects of unemployment on the portfolio choice of households in the US and in Germany. We distinguish short- and long-term unemployment and find that, in case of short-term unemployment, unemployment insurance offsets the negative impact of unemployment risk on households’ equity holdings. When incorporating long-term unemployment, the US-equity share drops. This negative effect of unemployment is mainly driven by its high expected duration. In Germany, however, long-term unemployment does not significantly alter portfolio decisions. We show that different responses of portfolios to unemployment risk can be attributed to both differences in social security payments and different age-income profiles.

‘Public on the outside, private on the inside’: the organizational hybridization, sense of belonging and identity strategies of the employees of a public unemployment insurance fund in Switzerland

A number of studies show that New Public Management reforms have altered the current identity benchmarks of public officials, particularly by hybridizing values or management practices. However, existing studies have largely glossed over the sense of belonging of officials when their organization straddles the concerns of public service and private enterprise, so that the boundary between public and private sector is blurred. The purpose of this article is precisely to explore this sense of belonging in the context of organizational hybridization. It does so by drawing on the results of research conducted among the employees of a public unemployment insurance fund in Switzerland. On the one hand, the analysis shows how much their markers of belonging are hybrid, multiple and constructed in negative terms (with regard to the State), while indicating that the working practices of the employees point to an identity that is nevertheless closely bound with the public sector. On the other hand, the analysis shows that the organization plays strategically with its State status, by exploiting either its private or public identity in line with the needs related to its external image. The article concludes with a discussion of the results highlighting the strategic functionality of the hybrid identity of the actors. Points for practitioners The article is of particular interest to practitioners who are questioning the effects on identity of the increasingly hybrid organizational context which organizations are faced with today – straddling a public service rationale and that of a private enterprise. While the organizational hybridity brought about by NPM is making matters increasingly complex for practitioners – especially with regard to the proliferation of expectations made of them – the article nevertheless notes that it is this very same hybridity that provides actors with multiple identity-related markers of belonging which practitioners are likely to exploit strategically to adapt to this growing spectrum of demands. The idea of playing alternately with the public or private identity of the organization according to context has the potential of giving an extra margin of manoeuvre to practitioners and managers working in a hybrid environment.

Employment and Wage Insurance within Firms: Worldwide Evidence

Using a firm-level international panel dataset, we study if unemployment insurance offered by the government and by firms are substitutes. We exploit cross-country and time-series variation in public unemployment insurance as a shifter of workers’ demand for insurance within firms, and family vs. non-family ownership as a shifter of firms’ supply of insurance. Our evidence supports the substitutability hypothesis: employment stability in family firms is greater, and the wage discount larger, in countries and periods with less generous public unemployment insurance, while no such substitutability emerges for non-family firms.