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The Determination of Unemployment Benefits

Author

Listed:
  • Rafael Di Tella

    (Harvard Business School)

  • Robert J. MacCulloch

    (London School of Economics)

Abstract
While much empirical research exists on labor market consequences of unemployment benefits, there is remarkably little evidence on the forces determining benefits. We present a simple model where workers desire insurance against unemployment risk and benefits increase the unemployment rate. We then conduct one of the first empirical analyses of the determinants of the parameters of the benefit system. Using data for developed countries for 197189, controlling for year and country fixed effects and the government's political color, we find evidence that the level of benefits falls when the unemployment rate is high. This is consistent with Wright's tax effect.

Suggested Citation

  • Rafael Di Tella & Robert J. MacCulloch, 2002. "The Determination of Unemployment Benefits," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 404-434, Part.
    • Handle: RePEc:ucp:jlabec:v:20:y:2002:i:2:p:404-403
    DOI: 10.1086/338690
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    References listed on IDEAS

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    Cited by:

    1. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
    2. MacCulloch, Robert, 1999. "What makes a revolution?," ZEI Working Papers B 24-1999, University of Bonn, ZEI - Center for European Integration Studies.
    3. Howell David R. & Baker Dean & Glyn Andrew & Schmitt John, 2007. "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-73, May.
    4. Kuhn, Andreas, 2009. "In the Eye of the Beholder: Subjective Inequality Measures and the Demand for Redistribution," IZA Discussion Papers 4360, Institute of Labor Economics (IZA).
    5. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2003. "The Macroeconomics of Happiness," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 809-827, November.
    6. Andreas Kuhn, 2009. "In the eye of the beholder: subjective inequality measures and the demand for redistribution," IEW - Working Papers 425, Institute for Empirical Research in Economics - University of Zurich.
    7. Matsubayashi, Tetsuya & Ueda, Michiko, 2011. "The effect of national suicide prevention programs on suicide rates in 21 OECD nations," Social Science & Medicine, Elsevier, vol. 73(9), pages 1395-1400.
    8. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 1998. "Equilibrium unemployment insurance," Economics Working Papers 605, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1999.
    9. Douglas, R & MacCulloch, Robert, 2016. "Welfare: Savings not Taxation," Working Papers 31890, Department of Economics, The University of Auckland.
    10. Rafael Di Tella & Robert MacCulloch, 2014. "Culture, Beliefs and Economic Performance," Working Papers 14_06, Motu Economic and Public Policy Research.
    11. David R. Howell & Miriam Rehm, 2009. "Unemployment compensation and high European unemployment: a reassessment with new benefit indicators," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(1), pages 60-93, Spring.
    12. Huang, Emma Li-Hsuan & Huang, Julia Hsin-Yi, 2013. "Labor Market Reforms on the Unemployment Rate and Wage Payments in Europe," MPRA Paper 63248, University Library of Munich, Germany.
    13. Botta, Alberto & Tippet, Ben, 2020. "The roots of a divided eurozone: rigid labour markets or asymmetric technology-macroeconomic regimes?," Greenwich Papers in Political Economy 30958, University of Greenwich, Greenwich Political Economy Research Centre.
    14. Laszlo Goerke & Markus Pannenberg & Heinrich Ursprung, 2010. "A positive theory of the earnings relationship of unemployment benefits," Public Choice, Springer, vol. 145(1), pages 137-163, October.
    15. Di Tella, Rafael & MacCulloch, Robert, 2006. "Europe vs America: Institutional hysteresis in a simple normative model," Journal of Public Economics, Elsevier, vol. 90(12), pages 2161-2186, December.
    16. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    17. Neugart, Michael, 2005. "Unemployment insurance: The role of electoral systems and regional labour markets," European Journal of Political Economy, Elsevier, vol. 21(4), pages 815-829, December.
    18. Fredriksson, Peter, 1999. "The political economy of public employment programs," Journal of Public Economics, Elsevier, vol. 72(3), pages 487-504, June.
    19. Oswald, Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations: Part I," Economic Research Papers 268744, University of Warwick - Department of Economics.
    20. Di Tella, Rafael & MacCulloch, Robert, 2008. "Gross national happiness as an answer to the Easterlin Paradox?," Journal of Development Economics, Elsevier, vol. 86(1), pages 22-42, April.
    21. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
    22. Robert MacCulloch, 2001. "Does Social Insurance Help Secure Property Rights?," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 31, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    23. Tetsuya Matsubayashi & Michiko Ueda, 2012. "Government Partisanship and Human Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 107(1), pages 127-148, May.
    24. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 545-571, September.
    25. Andreas Kuhn, 2009. "In the Eye of the Beholder: Subjective Inequality Measures and the Demand for Redistribution," NRN working papers 2009-14, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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    More about this item

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J69 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Other

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