A Positive Theory of Unemployment Insurance and Employment Protection

36 Pages Posted: 15 Jul 2009

See all articles by Vincent Anesi

Vincent Anesi

University of Nottingham

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: June 2009

Abstract

The objective of this paper is to provide a political economy explanation of the empirically observed negative correlation between employment protection and insurance. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria being in the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.

Keywords: bidimensional voting, citizen-candidate, flexicurity, labor market rigidities, party competition

JEL Classification: D72, J65, J68

Suggested Citation

Anesi, Vincent and De Donder, Philippe, A Positive Theory of Unemployment Insurance and Employment Protection (June 2009). CEPR Discussion Paper No. DP7333, Available at SSRN: https://ssrn.com/abstract=1433929

Vincent Anesi (Contact Author)

University of Nottingham ( email )

School of Economics, Room B18,
SCG, University of Nottingham
Nottingham, NG7 1GD
United Kingdom

HOME PAGE: http://vincentanesi-economics.net/

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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