Unemployment Benefits, Contract Length and Nominal Wage Flexibility
2001 (English)Report (Other academic)
We show in a union-bargaining model that a decrease in the unemployment benefit level increases not only equilibrium employment, but also nominal wage flexibility, and thus reduces employment variations in the case of nominal shocks. Long-term wage contracts lead to higher expected real wages and hence higher expected unemployment than short-term contracts. Therefore lower benefits reduce the expected utility gross of contract costs of a union member more with long-term than with short-term contracts and thus create an incentive for shorter contracts. Incentives for employers work in the same direction. Lower taxes associated with lower benefits also tend to make short-term contracts more attractive.
Place, publisher, year, edition, pages
Stockholm: IIES , 2001. , 43 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University. (Online), ISSN 1653-610X
nominal wage flexibility, contract length, macroeconomic fluctuations, unemployment benefits
IdentifiersURN: urn:nbn:se:su:diva-41169OAI: oai:DiVA.org:su-41169DiVA: diva2:328757