Should Unemployment Benefits Be Related to Previous Earnings?

Burkhard Heer

FinanzArchiv: Public Finance Analysis, 2006, vol. 62, issue 4, 530-550

Abstract: In most OECD countries, unemployment benefits are tied to individual previous labor earnings. We study the progressivity of this indexation in a calibratedgeneral-equilibrium overlapping-generations model with flexible labor supply, keeping the government expenditures on unemployment insurance constant over the different scenarios. We find that higher indexation of unemployment benefits to previous earnings has only small quantitative effects on output, employment, the distribution of income, and welfare. We also provide a tentative analysis of the most recent Hartz IV reform, where unemployment benefits decrease sharply after one year of unemployment. This reform is found to have positive but very small efficiency and welfare effects.

Keywords: earnings-related unemployment benefits; Hartz IV; computable general equilibrium; overlapping generations (search for similar items in EconPapers)
JEL-codes: E60 E62 J64 J65 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (9)

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Working Paper: Should Unemployment Benefits be Related to Previous Earnings? (2002)
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DOI: 10.1628/001522106X172689

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