On the extent of re-entitlement effects in unemployment compensation |
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| Authors: | Javier Ortega Laurence Rioux |
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| Institution: | 1. City University London, United Kingdom;2. CEP (LSE), United Kingdom;3. Toulouse School of Economics, France;4. CEPR, United Kingdom;5. CREST-INSEE, Paris, France;1. Department of Finance, Monash University, Australia;2. Faculty of Business and Economics, Monash University, Australia;3. The University of Western Australia, Australia;1. Institute of Finance, Warsaw School of Economics, Poland;2. Institute of Finance, Warsaw School of Economics and National Bank of Poland, Poland;3. Institute of Econometrics, Warsaw School of Economics, Poland;1. EPEE, University of Evry, University Paris-Saclay, France;2. IPAG Business School, PSE, CNRS, TIMAS, APD, France;3. Montpellier Business School – Montpellier Research in Management, France;1. Bocconi University, Italy;2. CEPR, United Kingdom;3. IFS, United Kingdom;4. Tel Aviv University, Israel;5. New York University, United States;6. NBER, United States;1. Queen Mary University of London, UK;2. NovaSBE, Portugal |
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| Abstract: | We analyze the implications of two-tier unemployment compensation systems with non-automatic eligibility in an equilibrium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, re-entitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease in benefits over time, and a longer employment duration required for UI eligibility than in the current system. |
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