Level Of Unemployment Benefits Research Articles

Can “happiness data” help evaluate economic policies?

Imagine a government confronted with a controversial policy question, like whether it should cut the level of unemployment benefits. Will social welfare rise as a result? Will some groups be winners and other groups be losers? Will the welfare gap between the employed and unemployed increase? “Happiness data” offer a new way to make these kinds of evaluations. These data allow us to track the well-being of the whole population, and also sub-groups like the employed and unemployed people, and correlate the results with relevant policy changes.

Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden

Abstract Although there is a large literature on employment effects of earned income tax credits (EITCs) and unemployment benefits, less is known about wage effects. In our model, the impact is via the net (after-tax) replacement rate. Using a panel of individuals from Sweden, we find a positive relationship between the net replacement rate and wages with semi-elasticities in the range 0.2-0.4. This implies that a one per cent reduction in the unemployment benefit level or a one per cent increase in the net-of-tax rate is associated with a fall in the before-tax wage of 0.1-0.2 per cent. EITCs and unemployment benefit reductions are thus likely to induce wage moderation. Keywords: Earned income tax credit, Unemployment benefits, Wage formation.

Social Policy and Perceived Immigrant Labor Market Competition in Europe: Is Prevention Better Than Cure?

Previous research on attitudes toward immigrants has so far focused on composite outcome measures instead of dealing with more specific forms of perceived threat and prejudice. The present article approaches this gap by investigating the antecedents of the perception that immigrants take jobs away from the host-country population. This form of perceived economic competition is a fundamental feature of immigrant-native relations in many countries, and it is embedded in the institution of the labor market. Accordingly, the main interest of this study lies in the influence of two central aspects of labor market policy, employment protection legislation and unemployment benefit level. European Social Survey data are used in multilevel models that include individual-, regional-, and country-level factors. The results indicate that unemployment benefits abate perceived competition, and the impact is strong. This finding is robust against the inclusion of several other policy indicators, including integration policies, welfare regime types, and other structural factors such as unemployment rates and unionization figures. Employment protection affects perceived economic threat only indirectly by mitigating the impact of regional unemployment. Furthermore, it actually increases perceived competition for unemployed persons. These findings challenge the notion that prevention is always better than cure.

Search, flows, job creations and destructions

ABSTRACT This paper presents a short overview of dynamic models of labor markets with transaction costs. It shows that these models have deeply renewed the understanding of job search, job flows, job creations and destructions, unemployment and wage formation. It argues that this renewal provides a very useful toolkit for analyzing important economic policy issues such as the optimal level of unemployment benefits, the funding of unemployment insurance and the impact of employment protection legislation.

Adverse Incentive Effects of the Unemployment Benefit Level in Romania

Abstract This paper proposes an empirical analysis of the effects of unemployment benefit on unemployment in Romania. First, the existence of a long-run equilibrium relation between the two variables was checked using single-equation cointegration tests. The results showed that such a relation does not exist. Next, in order to evaluate the short-term effects of unemployment benefit on unemployment level, a VAR analysis was employed. Impulse response functions analysis showed that the number of persons registered as unemployed is expecting to rise as the value of monthly unemployment benefit is increasing. However, the variance decomposition analysis pointed out that only a small part (under 5%) of unemployment short-term dynamics could be explained by potential shocks in the unemployment benefit level.

Should the Specificity of Human Capital Affect Unemployment Insurance Generosity?

This article examines the argument whereby the more specific the human capital of the workforce is, the less such individuals can expect to receive in benefits if and when they experience unemployment. We present a theoretical model for understanding how the composition of human capital determines the level of unemployment benefits. This model shows that, depending on the scenario chosen for the management of the insurance fund, the proportion of individuals with specific human capital can lead to the replacement rate of optimal unemployment compensation rising or falling.

Labor Market Institutions and Informality in Transition and Latin American Countries

This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality.

The Political Economy of Labour Market Policies in Western and Eastern European Countries

Discussions on how to organize European labour markets are one of the key public policy issues of today. In European policy debates, the most important concepts seem to be ‘flexicurity’ and the ‘transitional labour market’. In this report we examine the cross-country variation in the generosity of unemployment benefits, which is a key element of the flexicurity model. Building on the political economy literature, we test hypotheses on the role of partisan politics, employment relations and employment protection legislation and active labour market policies in unemployment benefit reform. These factors have been extensively studied in the political economy literature, but hardly for Eastern European countries, because of a lack of data. We employ pooled time series cross-section regressions to analyze newly constructed indicators for Western and Eastern European countries. The results indicate that left-wing governments are positively related to unemployment protection for both Western and Eastern European countries, but this linkage is conditional on the economic situation. Coordinated bargaining by strong and centrally organized labour unions has also a positive impact on benefit generosity. Moreover, we find a negative relationship between the strictness of employment protection legislation and the generosity of unemployment benefit schemes, which is in line with the concept of the flexicurity model. Finally, within the EU we find a trend of convergence of unemployment benefit levels in the period 1990-2009. This finding indicates that the new EU member states have caught up. NEUJOBS Working Documents are intended to give an indication of work being conducted within the NEUJOBS research project and to stimulate reactions from other experts in the field. The views expressed in this paper are those of the author and do not necessarily represent any institution with which he is affiliated. See the back page for more information about the NEUJOBS project.

How well does a dynamic Mincer equation fit NLSY data? Evidence based on a simple wage-bargaining model

This article argues that a dynamic Mincer equation can be seen as the solution of a simple wage-bargaining model between a worker and an employer where the unemployment-benefit level, affecting the outside option of the worker, depends on past wages. Further, it shows that this model provides a good fit of the US National Longitudinal Survey of Youth data. The evidence is robust to a number of sensitivity checks.

Incentive Contracts and Institutional Labor Market Design

This paper analyzes a labor market, where firms offer workers incentive contracts and make decisions about irreversible capital investments. The state authority regulates the institutional framework by choosing the level of unemployment benefits and the workers' bargaining power. Our results suggest that unemployment benefits reduce workers' incentives to exert effort, thereby decreasing capital investments by the firm, and thus, output. The workers' bargaining power, in contrast, has ambiguous effects, as it raises the workers' share of the quasi-rent. On that account, it increases effort incentives, but reduces capital investment. We find that overall welfare is maximized by reducing the unemployment benefits and setting a positive bargaining power of labor.

Efficient unemployment insurance and the cost of borrowing

This paper presents a simple formula relating the efficiency of the level of unemployment benefits to the cost of saving in an infinite-horizon economy in which households can borrow up to their natural borrowing limit. I extend Baily’s (1978) result showing that the benefits of unemployment insurance can be directly related to a measure of households’ impatience. This is possible because in the type of heterogeneous agent models under consideration, buffer-stock savings, and thus the expected consumption drop during unemployment, are determined by the prevailing interest rate.

Convergence Without Hard Criteria: Does EU Soft Law Affect Domestic Unemployment Protection Schemes?

The European Employment Strategy (EES) aims to promote convergence of domestic labour market policies by soft law instruments. Previous studies on the impact of the EES are mainly focused on active labour market policies. The present study aims at explaining cross national variation in national passive labour market policies and unemployment benefit levels. Building on the most recent measures and pooled time series data, the empirical findings reveal the presence of a convergence process among the most advanced economies regarding passive labour market policy efforts, with the EES fostering this trend even further. Furthermore, our findings support the argument that the EES creates pressure on governments to reform domestic labour market policies, but this pressure varies across countries and over time. The results suggest that the recommendations from the European Council have contributed to unemployment benefit reform processes.

Unemployment Benefits or Taxes: How Should Policy Makers Redistribute Income Over the Business Cycle?

This paper studies optimal unemployment benefit levels and optimal proportional income tax rates over the business cycle. Previous research suggests that policy makers should make unemployment insu ...

Lost in transition: the costs and consequences of sectoral labour adjustment

Abstract This paper uses an equilibrium search and matching model to study Canada’s sectoral labour adjustment in 2002–2006 during an increase in global commodity prices and exchange rate appreciation. I estimate economically significant adjustment costs for the aggregate economy in this episode and demonstrate that difficulty in transferring skills between jobs for individual workers can be an important contributor to these aggregate costs. The analysis also demonstrates that the level of unemployment benefits impacts the economy’s sectoral composition, its aggregate productivity, and the speed of its adjustment to shocks.

Endogenous labor market institutions in an open economy

The paper sets up a two-country asymmetric trade model with heterogeneous firms, search frictions and endogenous labor market institutions. Countries are linked by trade in goods and non-cooperatively set unemployment benefits to maximize national welfare. We show that more open and smaller economies have more generous unemployment benefit replacement rates as a larger fraction of the costs is borne by foreign trading partners. These results are in line with empirical stylized facts. Additionally, we find that the optimal level of unemployment benefits is independent from the level of unemployment benefits abroad and that non-cooperatively set unemployment rates are inefficiently high.

A Search Model of Unemployment and Inflation*

This paper introduces money into the standard labor-matching model. A double-coincidence problem makes money necessary as a medium of exchange. In the long run, a rise in the growth rate of money leads to higher inflation and higher unemployment, such that the long-run Phillips curve is not vertical. The optimal monetary growth rate decreases with greater worker bargaining power, the level of unemployment benefits, and the payroll tax rate.

Unemployment in early career in the UK

In this article, I analyse the consequences of unemployment on the re-entry occupational status and subsequent occupational status growth of different educational groups in the first years of employment in the UK. I argue that phases of unemployment mean different things for different educational groups. The sequential nature of job offers causes job searchers either to accept a job offer immediately or to wait for the next offer. Higher aspirations and higher levels of savings mean that high-educated people are more likely to wait until they are offered a job that improves their occupational position. In the case of low-educated workers, however, waiting for a better job offer might not be the best strategy, because they might never get one; in addition, the low level of unemployment benefits from previous salaries, the regime of sanctions linked to the right to receive unemployment benefits and low household incomes push them into employment. I use growth curve models and parameterize in one model both the pre-unemployment and the post-unemployment phases. Based on British Household Panel Survey (BHPS) data, the results confirm my argumentation: high-educated people gain status while low-educated entrants lose status upon re-entering the labour market after unemployment.

Are the unemployed equally unhappy all around the world? The role of the social norms to work and welfare state provision in 28 OECD countries

This paper examines cross-national and temporal variations in the effect of personal unemployment on life satisfaction. To account for these variations we consider the social norm to work and national systems of unemployment benefits. Following the social psychological approach to social norms ( Cialdini, Reno, & Kallgren, 1990) we differentiate between descriptive, societal injunctive and personal injunctive norms. We use the national unemployment rates as a proxy of the descriptive norm to work. The societal injunctive norm and the personal injunctive norm to work are conceptualized as society’s vs. personal attitudes towards working for a living versus living off public funds, respectively. The results of the multilevel regression analysis of the data from 28 OECD countries (European and World Values Survey, 1999–2009) suggest that the single country characteristic that could explain contextual variations in the unemployment effect is the societal injunctive norm to work: unemployment hurts less in societies with more tolerant attitudes towards being out of work. This effect holds even after controlling for the national level of unemployment benefits and the personal injunctive norm to work. We conclude that the negative effect of personal unemployment in societies with a strong societal injunctive norm to work is so much higher due to social pressure and disapproval and not to the perception that one does not live up to their own standards.

Incentive Contracts and Efficient Unemployment Benefits

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the worker's position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Incentive Contracts and Efficient Unemployment Benefits

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.