A Positive Theory of the Earnings Relationship of Unemployment Benefits

Laszlo Goerke, Markus Pannenberg and Heinrich Ursprung

No 3003, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Evidently, the benefit-structure of the unemployment insurance has a significant influence on profits and trade union utility. We show for a wage bargaining model that a stronger earnings relationship of unemployment benefits may reduce wages and increase employment. This raises the question as to how the benefit structure is determined in the political process. To answer this question, we consider a government that chooses the earnings relationship with a view to maximising its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak one when the unions' influence is pronounced. Deepening international economic integration has ambiguous effects. Using panel data for 19 OECD countries from 1961 to 2003 we find support for the hypothesized domestic influences and show that the earnings relationship varies negatively with openness.

Keywords: unemployment benefits; wage bargaining; political support maximization; panel data; earnings relationship (search for similar items in EconPapers)
JEL-codes: D72 J51 J65 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2007-08
New Economics Papers: this item is included in nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: Public Choice, 2010, 145 (1-2), 137-163

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Journal Article: A positive theory of the earnings relationship of unemployment benefits (2010)
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