Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable?

15 Pages Posted: 28 Feb 2002

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Date Written: February 2002

Abstract

This paper explores how the introduction of an experience rated system of unemployment insurance affects employment and welfare in a model where implicit contracts between firms and workers give rise to wage rigidities and unemployment. In the literature, it has been argued that experience rated systems of unemployment insurance may reduce long term employment as firms anticipate the higher costs of layoffs implied by experience rating. Our analysis shows that, despite the higher costs of layoffs, the introduction of experience rating may increase long term employment. Moreover, it unambiguously increases welfare.

Keywords: Unemployment Insurance, Labor Markets, Implicit Contracts

JEL Classification: H20, J63, J65

Suggested Citation

Fuest, Clemens, Temporary Layoffs and Unemployment Insurance: Is Experience Rating Desirable? (February 2002). CESifo Working Paper Series No. 663. Available at SSRN: https://ssrn.com/abstract=301499

Clemens Fuest (Contact Author)

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

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Ludwig-Maximilians-University, Munich ( email )

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Center for Economic Studies (CES) ( email )

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