Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?

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

No 834, IZA Discussion Papers from Institute of Labor Economics (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 labour market risk. The mix of quantity restrictions and price regulations adopted by the various countries would seem to correspond to a stable politico-economic equilibrium. We develop a model in which voters are required to cast a ballot over the strictness of EPL and over the generosity of UB. Agents are heterogeneous along two dimensions: employment status — there are insiders and outsiders — and skills — low and high skills. We show that if there exists a majority of low-skill insiders, the voting game has a politico-economic equilibrium with low UB and high EPL; otherwise, the equilibrium features high UB and low EPL. Another testable implication of the model is that a larger share of elderly workers increases the demand for EPL. Panel data on institutions and on the age and educational structures of the populations are broadly in line with our results. We also find that those favouring EPL over UB in a public opinion poll carried in 2001 in Italy have precisely the same characteristics predicted by our model.

Keywords: employment protection; unemployment insurance; political equilibria (search for similar items in EconPapers)
JEL-codes: D72 J65 J68 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2003-07
New Economics Papers: this item is included in nep-dge and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

Downloads: (external link)
https://docs.iza.org/dp834.pdf (application/pdf)

Related works:
Working Paper: Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits? (2003)
Working Paper: Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits? (2003)
Working Paper: Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?
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: https://EconPapers.repec.org/RePEc:iza:izadps:dp834

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 of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().