Labour Market Effects of Unemployment Accounts: Insights from Behavioural Economics

Thomas van Huizen and Janneke Plantenga

CESifo Economic Studies, 2011, vol. 57, issue 4, 581-604

Abstract: This article reconsiders the behavioural effects of replacing the existing unemployment insurance system with unemployment accounts (UAs). Under this alternative system, workers are required to save a fraction of their wage in special accounts, whereas the unemployed are allowed to withdraw savings from these accounts. Previous studies argued that such a reform will improve employment incentives considerably and thereby lead to a dramatic decrease in unemployment levels and durations. We show that this expected impact hinges critically on the assumptions on time preferences. Using recent insights from behavioural economics, we demonstrate that the theoretical impact of UAs is ambiguous rather than substantially positive. (JEL codes: D03, J64, J65) Copyright The Author 2011. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2011
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