Research Discussion Papers, Bank of Finland
No 24/2003:
Buffer funding of unemployment insurance in a dynamic labour union model
Marja-Liisa Halko ()
Abstract: In this paper we study the implications of the
unemployment insurance (UI) financing system on wage levels and employment
when labour markets are unionised and the revenues of the firms are
stochastic. We use the basic monopoly union approach of wage and employment
determination and assume that unemployment benefits are financed by
employees’ UI contributions to the union’s UI fund and by the government’s
tax revenue. The main focus of this paper is on the effects of UI buffer
funding on employment fluctuations. We show that, compared with the
pay-as-you-go financing system, buffer funding stabilises the economy by
decreasing employment fluctuations where wages are flexible. If wages are
rigid, buffer funding stabilises net wage variations, but has hardly any
effect on employment fluctuations.
Keywords: unemployment insurance; unions; stabilisation; buffer funding; (follow links to similar papers)
JEL-Codes: E61; J51; J65; (follow links to similar papers)
33 pages, October 21, 2003
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