What shapes the generosity of short- and long-term benefits? A political economy approach

Baptiste Françon () and Michaël Zemmour ()
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Baptiste Françon: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Degressivity of unemployment benefits is a major feature of social protection in most industrialised countries: the replacement rate (the ratio between the level of welfare benefits and the previous income) typically declines with the length of the unemployment spell. Moreover degressivity of unemployment benefits has significant distributive effects as the risk of long-term unemployment varies from one individual to another. This paper proposes a formal model of political support for unemployment insurance that takes into account the decrease in the level of benefits over time. A discount factor is introduced that diminishes the level of benefits for long-term unemployed. The main predictions of our model are the following: i) Unemployment insurance size negatively depends on both the average level and the heterogeneity of unemployment risk ii) The degressivity increases with the average level and the heterogeneity in the individual level of employability defined as the probability of finding a job when unemployed. These predictions are then tested using a dataset of 24 OECD countries. Empirical results are consistent with the model

Keywords: Long-term unemployment; political economy; replacement rate; risk heterogeneity; unemployment insurance; voting behaviour (search for similar items in EconPapers)
JEL-codes: D72 J65 P16 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2013-03
New Economics Papers: this item is included in nep-ias and nep-pol
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Working Paper: What shapes the generosity of short- and long-term benefits? A political economy approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:13027

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