Unemployment Benefits, Contract Length and Nominal Wage Flexibility

37 Pages Posted: 9 Aug 2001

See all articles by Lars Calmfors

Lars Calmfors

Research Institute of Industrial Economics; IIES

Asa Johansson

National Institute of Economic Research - NIER

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

We show in a union-bargaining model that a decrease in the unemployment benefit level increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long-term wage contracts lead to higher expected real wages and, hence, higher expected unemployment than short-term contracts. Therefore lower benefits reduce the expected utility gross of contract costs of a union member more with long-term than with short-term contracts and thus create an incentive for shorter contracts. Incentives for employers work in the same direction. Lower taxes associated with lower benefits also tend to make short-term contracts more attractive.

Keywords: Nominal Wage Flexibility, Contracts Length, Macroeconomic Fluctuations, Unemployment Benefits

JEL Classification: E24, E32, J64, J65

Suggested Citation

Calmfors, Lars and Johansson, Asa, Unemployment Benefits, Contract Length and Nominal Wage Flexibility (June 2001). CESifo Working Paper Series No. 514. Available at SSRN: https://ssrn.com/abstract=277360

Lars Calmfors (Contact Author)

Research Institute of Industrial Economics ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
+46761355814 (Phone)

IIES ( email )

Stockholm, SE-10691
Sweden
+468163076 (Phone)

Asa Johansson

National Institute of Economic Research - NIER ( email )

Box 3116
Stockholm, 10362
Sweden

Register to save articles to
your library

Register

Paper statistics

Downloads
109
Abstract Views
1,695
rank
211,499
PlumX Metrics