A Positive Theory of the Earnings Relationship of Unemployment Benefits

31 Pages Posted: 11 Sep 2007

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Heinrich W. Ursprung

University of Konstanz; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 2007

Abstract

Evidently, the benefit-structure of the unemployment insurance has a significant influence on profits and trade union utility. We show for a wage bargaining model that a stronger earnings relationship of unemployment benefits may reduce wages and increase employment. This raises the question as to how the benefit structure is determined in the political process. To answer this question, we consider a government that chooses the earnings relationship with a view to maximising its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak one when the unions' influence is pronounced. Deepening international economic integration has ambiguous effects. Using panel data for 19 OECD countries from 1961 to 2003 we find support for the hypothesized domestic influences and show that the earnings relationship varies negatively with openness.

Keywords: earnings relationship, panel data, political support maximization, wage bargaining, unemployment benefits

JEL Classification: D72, J51, J65

Suggested Citation

Goerke, Laszlo and Pannenberg, Markus and Ursprung, Heinrich, A Positive Theory of the Earnings Relationship of Unemployment Benefits (August 2007). IZA Discussion Paper No. 3003. Available at SSRN: https://ssrn.com/abstract=1012576

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

Behringstraße 21, 7. Floor, Building H
Trier, 54296
Germany

HOME PAGE: http://www.iaaeu.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics ( email )

Universitätsstrasse 25
Bielefeld, D-33615
Germany
+49 521 106-5076 (Phone)
+49 521 106-5086 (Fax)

HOME PAGE: http://aix5.fh-bielefeld.de/~mpannenb/index.html

DIW Berlin - GSOEP ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Institute for the Study of Labor (IZA), Bonn

P.O. Box 7240
Bonn, D-53072
Germany

Heinrich Ursprung

University of Konstanz ( email )

Konstanz, D-78457
Germany
+49 7531 88 3713 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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