The Determination of Unemployment Benefits

Oxford University IES Applied Economics Discussion Paper No. 180

30 Pages Posted: 31 May 2001

See all articles by Robert MacCulloch

Robert MacCulloch

Imperial College London - Tanaka Business School

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2000

Abstract

While much empirical research has been done on the labor market consequences of unemployment benefits, there is remarkably little evidence on the forces determining benefits. The paper presents a simple model where workers desire insurance against the possibility of unemployment and unemployment benefits increase the unemployment rate. We then conduct, what we believe, is one of the first empirical analyses of the determinants of the parameters of the unemployment benefit system. Using OECD data for 1971-1989, controlling for year and country fixed effects, and controlling for the political color of the government, we find evidence suggesting that benefits fall when the unemployment rate is high. This is consistent with the tax-effect described in Wright (1986) and Atkinson (1990). There is weaker evidence that benefits increase with positive changes in the unemployment rate, which may be proxying for the inflow rate and could be called an insurance effect.

Keywords: endogenous unemployment benefits, unemployment, politics

JEL Classification: H53, J65

Suggested Citation

MacCulloch, Robert and Di Tella, Rafael, The Determination of Unemployment Benefits (September 14, 2000). Oxford University IES Applied Economics Discussion Paper No. 180. Available at SSRN: https://ssrn.com/abstract=271658 or http://dx.doi.org/10.2139/ssrn.271658

Robert MacCulloch (Contact Author)

Imperial College London - Tanaka Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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