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A positive theory of the earnings relationship of unemployment benefits

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Abstract

In a wage bargaining model, a stronger earnings relationship of unemployment benefits may reduce wages. Therefore, the benefit structure significantly influences profits and trade union utility, raising the question as to how the benefit structure is determined in the political process. We consider a government that chooses the earnings relationship in order to maximize its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak relationship when unions are influential. Using panel data for 19 OECD countries, we find support for these theoretical predictions. Moreover, we show that the earnings relationship varies negatively with openness.

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Authors and Affiliations

  1. University of Tübingen, Tübingen, Germany

    Laszlo Goerke

  2. DIW Berlin, University of Applied Sciences Bielefeld, Bielefeld, Germany

    Markus Pannenberg

  3. University of Konstanz, Konstanz, Germany

    Heinrich W. Ursprung

Authors
  1. Laszlo Goerke
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  2. Markus Pannenberg
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  3. Heinrich W. Ursprung
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Correspondence to Laszlo Goerke.

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Goerke, L., Pannenberg, M. & Ursprung, H.W. A positive theory of the earnings relationship of unemployment benefits. Public Choice 145, 137–163 (2010). https://doi.org/10.1007/s11127-009-9558-0

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  • DOI: https://doi.org/10.1007/s11127-009-9558-0

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