Optimal Earnings-Related Unemployment Benefits

Mohammad Taslimi ()
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Mohammad Taslimi: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2003:16, Working Paper Series from Uppsala University, Department of Economics

Abstract: Existing unemployment insurance systems in many OECD countries involve a ceiling on insurable earnings. The result is lower replacement rate for employees with relatively high earnings. This paper examines whether replacement rates should decrease as the level of earnings rises. The framework is a search equilibrium model where wages are determined by Nash bargaining between firms and workers, job search intensity is endogenous and workers are heterogeneous. The analysis suggests higher replacement rates for low-paid workers if taxes are uniform. The same result may hold when taxes are redistributive. Numerical simulations indicate that there are modest welfare gains associated with moving from an optimal uniform benefit system to an optimally differentiated one in both cases, i.e., uniform and redistributive taxation. The case for differentiation arises from the fact that it may have favourable effects on the tax base.

Keywords: Unemployment insurance; Unemployment; Search (search for similar items in EconPapers)
JEL-codes: D81 D83 J64 J65 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-04-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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