Labor Turnover and the Public Allocation of Unemployment Insurance

Sevi Rodriguez Mora, John Hassler

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Two features distinguish the European and the U.S. labor markets. First, European countries have considerably more generous unemployment insurances. Second, the duration of unemployment and employment spells are substantially longer in Europe { turnover is low. We will build a model of political determination of the unemployment insurance to explain these di erences. We show that saving and borrowing is a good substitute for unemployment insurance when turnover is high, as in the U.S. A small deviation from actuarial fairness in the unemployment insurance system will then cause the employed median voter to prefer low unemployment insurance. With alow turnover, a high unemployment insurance becomes considerably more valuable to the median voter. Low turnover also causes a strong divergence between the longand short-run interest of the employed. If the median voter cannot bind future voters to a certain level of insurance, the voting cycle must be long to support a high level of insurance.
Original languageEnglish
Pages (from-to)55-83
Number of pages29
JournalJournal of Public Economics
Volume73
Issue number1
Publication statusPublished - Jul 1999

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