Should Unemployment Benefits be Related to Previous Earnings?

Arbeitspapier

In most OECD countries, unemployment benefits are tied to individual previous labor earnings. We study the progressivity of this indexation with regard to its effects on employment, output, and welfare in a calibrated general equilibrium model with search unemployment. Employment varies endogenously on both the intensive margin and the extensive margins as agents choose their labor supply (if employed) or their search effort (if unemployed) in order to optimize life-time utility. Compared to the case of lump-sum unemployment compensation, a system of insurance payments that are related to past contributions results in higher output and welfare. The effects on employment are negligible as employed workers rather accumulate more savings than to supply additional work in order to insure against the loss of employment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 747

Classification and Topics

• Classification: Wirtschaft
• Subject: earnings-related unemployment benefits ; search unemployment ; computable general equilibrium ; overlapping generations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Heer, Burkhard
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/76093
• Last update: 10.03.2025, 11:42 AM CET