What shapes the generosity of short- and long-term benefits? A political economy approach

Baptiste Françon () and Michaël Zemmour ()
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Baptiste Françon: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Degressivity of unemployment benefits is a major feature of social protection in most industrialised countries: the replacement rate (the ratio between the level of welfare benefits and the previous income) typically declines with the length of the unemployment spell. Moreover degressivity of unemployment benefits has significant distributive effects as the risk of long-term unemployment varies from one individual to another. This paper proposes a formal model of political support for unemployment insurance that takes into account the decrease in the level of benefits over time. A discount factor is introduced that diminishes the level of benefits for long-term unemployed. The main predictions of our model are the following: i) Unemployment insurance size negatively depends on both the average level and the heterogeneity of unemployment risk ii) The degressivity increases with the average level and the heterogeneity in the individual level of employability defined as the probability of finding a job when unemployed. These predictions are then tested using a dataset of 24 OECD countries. Empirical results are consistent with the model.

Keywords: Long-term unemployment; political economy; replacement rate; risk heterogeneity; unemployment insurance; voting behaviour; Assurance chômage; chômage de longue durée; comportement de vote; économie politique; hétérogénéité du risque; taux de remplacement (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-ias and nep-pol
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Published in 2013

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Working Paper: What shapes the generosity of short- and long-term benefits? A political economy approach (2013)
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