Seminar Papers, Institute for International Economic Studies, Stockholm University
Employment Turnover and Unemployment Insurance
() and José V. Rodríguez Mora
Abstract: Two features distinguish European and US labor markets.
First, most European countries have substantially more generous
unemployment insurance. Second, the duration of unemployment and employment
spells are substantially higher in Europe - employment turnover is lower.
We show that self-insurance, i.e., saving and borrowing, is a good
substitute for unemployment insurance when turnover is high as in the US.
If the insurance system is less than perfectly actuarially fair, the
employed median voter will prefer to self-insure instead of having
unemployment insurance if turnover is high. We also show that high
unemployment insurance make unemployed more willing to wait for a job with
low separation rates. This could make both high turnover/low insurance (US)
and low turnover/high insurance (Europe) stable equilibria. Low turnover
also leads to a strong divergence between the long and short run interest
of the employed. In abscence of devices such that the median voter can bind
future voters to some level of insurance, the voting cycle must thus be
long in order to support a high level of insurance.
Keywords: labor markets; unemployment insurance; employment turnover; self-insurance; median voter; stable equilibria; (follow links to similar papers)
JEL-Codes: J60; J65; (follow links to similar papers)
36 pages, October 31, 1997
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