Temporary Layoffs and Unemployment Insurance

Troels Østergaard Sørensen
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Troels Østergaard Sørensen: Institute of Economics, University of Copenhagen

No 90-13, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Short term unemployment in the Danish labor market is closely related to temporary layoffs. This paper presents some facts about the structure of unemployment and the ways of financing unemployment benefit (UB) in Denmark and Sweden. Next, a simplified version of the "Feldstein-model" of financing UB is reviewed. The main part of the paper develops a theoretical dynamic model as a background for understanding the effects of changing the level of UB and the ways of financing UB. The dynamic model combines the "Feldstein view" of "experience rating" and the transaction costs view of hiring and firing. The concept of an endogenous firm-specific labor force is derived. The analysis suggest that for certain values of the parameters in the model, an increase in the level of unemployment benefits or a decrease in experince rating can - contrary to Feldstein's model - increase steady state employment. Further, the "incentive effect" of a public sector budget constraint is discussed.

Pages: 17 pages
Date: 1990-06
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9013

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