Bismarck versus Beveridge. Flat-Rate and Earnings-Related Unemployment Insurance in a General Efficiency Wage Framework

Laszlo Goerke

FinanzArchiv: Public Finance Analysis, 2001, vol. 57, issue 3, 243-260

Abstract: A higher unemployment compensation reduces the incentives to provide effort in efficiency wage models. If there is a stronger dependence of unemployment benefits on current earnings, these incentives will be strengthened and efficiency wages can be lowered. An unemployment insurance with earnings-related benefits is thus characterised by higher employment than one with flat-rate benefits. The paper investigates under which conditions this advantage persists in the longer term when financial constraints such as an ex-post constant level of benefits and a balanced budget rule apply, or when firms are constrained to a constant level of profits.

JEL-codes: J41 J65 (search for similar items in EconPapers)
Date: 2001
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