Premium differentiation in the unemployment insurance system and the demand for labor

Rob Alessie and Hans Bloemen ()

No 2, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: In this study we investigate the effect of the introduction of premium differentiation (experience rating) in the Dutch Unemployment Insurance system on the demand for labor. We formulate a model of labor demand, based on the model by Bentolila and Bertola (1990), in which we distinguish two types of workers: the "young" and the "old". This distinction is made, as one of the major motives for opening the discussion around premium differentiation in the Netherlands is the wish to reduce the inflow of older workers into unemployment. In the model, labor adjustment costs (hiring and firing costs) are linear. The model allows for uncertainty in the business cycle. Premium differentiation is incorporated in the model as a rise in firing costs, accompanied by a decrease in unemployment insurance premium payments. Values for the model parameters are determined to quantify the effect of premium differentiation on the demand for labor in various sectors of the Dutch economy. We compute the effect of premium differentiation on the steady state level of labor demand. We also compute the effect of premium differentiation on the level of profits.

Keywords: Unemployment Insurance; premium differentiation; labor demand (search for similar items in EconPapers)
JEL-codes: J20 J60 J65 (search for similar items in EconPapers)
Date: 2000
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Related works:
Journal Article: Premium differentiation in the Unemployment Insurance system and the demand for labor (2004)
Working Paper: Premium Differentiation in the Unemployment Insurance System and the Demand for Labor (2000)
Working Paper: Premium Differentiation in the Unemployment Insurance System and the Demand for Labor (2000)
Working Paper: Premium Differentiation in the Unemployment Insurance System and the Demand for Labor (2000)
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