Incentive Contracts and Efficient Unemployment Benefits in a Globalized World

Carsten Helm and Dominique Demougin ()

No V-348-12, Working Papers from University of Oldenburg, Department of Economics

Abstract: Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyse this issue in a principal-agent model, higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Keywords: Unemployment benefits; incentive contracts; Nash bargaining; moral hazard; globalization (search for similar items in EconPapers)
JEL-codes: D82 E24 J41 J65 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2012-08, Revised 2012-08
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-lab
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Published in Oldenburg Working Papers V-348-12

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