Cross-Skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection

Tito Boeri (), J. Ignacio Conde-Ruiz () and Vincenzo Galasso ()

No 1371, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labor market risk. Different countries' locations along this trade-off represent stable, hard to modify, politico-economic equilibria. We develop a model in which voters are required to cast a ballot over the strictness of EPL, the generosity of UBs and the amount of redistribution involved by the financing of unemployment insurance. Agents are heterogeneous along two dimensions: employment status – insiders and outsiders – and skills – low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing among insiders, notably in favour of the low-skill workers. A key implication of the model is that configurations with strict EPL and low UB should emerge in presence of compressed wage structures. Micro data on wage premia on educational attainments and on the strictness of EPL are in line with our results. We also find empirical support to the substantive assumptions of the model on the effects of EPL.

Keywords: employment protection; unemployment insurance; political equilibria (search for similar items in EconPapers)
JEL-codes: J68 J65 D72 (search for similar items in EconPapers)
Date: 2004-10
View list of references View citations in EconPapers

Downloads: (external link)
ftp://repec.iza.org/RePEc/Discussionpaper/dp1371.pdf (application/pdf)

Related works:
Working Paper: Cross-Skill Redistribution and the Trade-Off Between Unemployment Benefits and Employment Protection (2004)
Working Paper: Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection (2004)
Working Paper: Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp1371

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().