Dynamic Wage Bargaining if Benefits are Tied to Individual Wages

Thomas Beissinger () and Hartmut Egger ()

No 389, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In dynamic wage bargaining models it is usually assumed that individual unemployment benefits are a fraction of the average wage level. In most countries, however, unemployment benefits are instead tied to the previous level of individually earned wages. We show how the analysis has to be modified if this fact is taken into account and compare our findings for the wage-setting curve with outcomes under other unemployment compensation schemes. In particular, we show that the widely used vertical wage-setting curve relies on more restrictive assumptions than usually considered. We also demonstrate that a reduction of unemploy-ment benefits of those who get unemployed after the bargaining period leads to higher equilibrium unemployment.

Keywords: unemployment benefits; Dynamic wage bargaining; wage curve (search for similar items in EconPapers)
JEL-codes: E24 J51 J64 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001-11
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (8)

Published - published in: Oxford Economic Papers, 2004, 56 (3), 437-460

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