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Cover of: Bismarck versus Beveridge: Flat-Rate and Earnings-Related Unemployment Insurance in a General Efficiency Wage Framework
Laszlo Goerke

Bismarck versus Beveridge: Flat-Rate and Earnings-Related Unemployment Insurance in a General Efficiency Wage Framework

Section: Articles
Volume 57 (2001) / Issue 3, pp. 243-260 (18)
Published 09.07.2018
DOI 10.1628/0015221012904931
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Summary
A higher unemployment compensation reduces the incentives to provide effort in efficiency wage models. If there is a stronger dependence of unemployment benefits on current earnings, these incentives will be strengthened and efficiency wages can be lowered. An unemployment insurance with earnings-related benefits is thus characterised by higher employment than one with flat-rate benefits. The paper investigates under which conditions this advantage persists in the longer term when financial constraints such as an ex-post constant level of benefits and a balanced budget rule apply, or when firms are constrained to a constant level of profits.