Bismarck versus Beveridge: Which Unemployment Compensation System Is More Prone to Labor Market Shocks?
University of Hohenheim; Institute for the Study of Labor (IZA)
Finanzarchiv, Vol. 58, No. 1, pp. 78-102, 2001
Based on a model with imperfectly competitive labor and product markets the real consequences of labor market shocks for economies with either an earnings-related or flat-rate unemployment compensation system are considered. A distinctive feature of the analysis is the comparison of both unemployment compensation systems in a two-country setting. It is demonstrated that the performance of a system with earnings-related or flat-rate unemployment benefits depends on whether the labor market shock is provoked in the home country or originates from abroad. We also point out how our results extend to two-tier unemployment compensation systems which differ with respect to the relative importance of earnings-related and flat-rate benefits.
JEL Classification: E24, F41, J23, J51, J65Accepted Paper Series
Date posted: February 18, 2012
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