Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable?

Fath Julia and Clemens Fuest
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Fath Julia: University of Cologne, Albertus-Magnus-Platz,Köln, Germany

German Economic Review, 2005, vol. 6, issue 4, 471-483

Abstract: This paper explores how the introduction of an experience-rated system of unemployment insurance affects employment and welfare in a model where implicit contracts between firms and workers give rise to wage rigidities and unemployment. In the literature, it has been argued that experience-rated systems of unemployment insurance may reduce long-term employment as firms anticipate the higher costs of layoffs implied by experience rating. Our analysis shows that the introduction of experience rating may increase or decrease long-term employment but it unambiguously raises welfare.

Keywords: Unemployment insurance; labour markets; implicit contracts (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1111/j.1468-0475.2005.00142.x

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