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Employment Turnover and Unemployment Insurance
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Department of Economics, Universitat Pompeu Fabra (Barcelona, Spain).
1997 (English)Report (Other academic)
Abstract [en]

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-insruance, i.e., saving and borrowing, is a good substitute for unemployment insurance when turnover is high as in US. If the insurance system is less than perfectly actuarilly fair, the employed median voter he will then prefer to self-insure instead of having unemployment insurance if turnover is high. We also show 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 absence 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.

Place, publisher, year, edition, pages
Stockholm: IIES , 1997. , 36 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 623
National Category
URN: urn:nbn:se:su:diva-40958OAI: diva2:327524
Available from: 2010-06-29 Created: 2010-06-29 Last updated: 2010-07-02Bibliographically approved

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