Incentive Contracts and Efficient Unemployment Benefits
EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
CESifo Working Paper Series No. 2670
Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the works 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 works affect this trade-off.
Number of Pages in PDF File: 29
Keywords: unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalisation
JEL Classification: J65, D82, J41, E24working papers series
Date posted: June 30, 2009
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