Unemployment Insurance and Experience Rating in a Simple Model of Involuntary Unemployment

Eskander Alvi
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Eskander Alvi: Western Michigan University

Public Finance Review, 1998, vol. 26, issue 4, 291-303

Abstract: Standard results in the area of unemployment insurance suggest that experience rating is beneficial because it confronts firms with layoff costs and reduces unem ployment. This article presents a different perspective, suggesting that experience rating may increase involuntary unemployment. A simple model that combines elements of efficiency wage and insider-outsider hypotheses is used to address the issues. Results show that experience rating causes significant wage and unemploy ment effects. Thus, standard conclusions in the experience-rating literature may not easily carry over to models of involuntary unemployment. From a policy perspective, this article suggests that costs and benefits of experience rating should be carefully evaluated, especially when unemployment is involuntary.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:26:y:1998:i:4:p:291-303

DOI: 10.1177/109114219802600401

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