Abstract
Employment protection and unemployment benefits are considered the most prominent insurance devices for workers to protect themselves against the risk of unemployment. It occurs that societies either choose a high level of employment protection relative to unemployment benefits or vice versa. This paper explains where countries locate on this trade-off. It is argued that higher coverage of voters out-of-the labor force with intra household transfers yields a politico-economic equilibrium with relatively high employment protection and relatively low unemployment benefits. Cross country data and survey data on voters’ preferences are presented that corroborate the outcomes of the model.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Agell, J. (2002). On the determinants of labour market institutions: Rent seeking vs. social insurance. German Economic Review, 3(2), 107–135.
Alesina, A., & Wacziarg, R. (1998). Openness, country size and government. Journal of Public Economics, 69, 305–321.
Algan, Y., & Cahuc, P. (2004). Job protection: The macho hypothesis. IZA Discussion Paper No. 1192.
Algan, Y., & Cahuc, P. (2006). Civic attitudes and the design of labor market institutions: Which countries can implement the danish flexicurity model? IZA Discussion Paper No. 1928, January 2006.
Bergstrom, T. (1997). A survey of theories of the family. In M. Rosenzweig & O. Stark (Eds.), Handbook of population and family economics (Vol. 1A, pp. 21–79). Amsterdam: Elsevier.
Bertola, G., & Boeri, T. (2002). EMU labour markets two years on: Microeconomic tensions and institutional evolution. In M. Buti & A. Sapir (Eds.), EMU and economic policy in Europe (pp. 249–280). Edward Elgar.
Boeri, T., Conde-Ruiz, J., & Galasso, V. (2004). Cross-skill redistribution and the trade-off between unemployment benefits and employment protection. CEPR Discussion Paper 4711. October 2004.
Brugiavini, A., Conde-Ruiz, J., & Galasso, V. (2003). Social security, private transfers and voting behaviour: The Italian case. In ISAE (Ed.), Annual report on monitoring Italy (pp. 187–232).
Buti, M., Pench, L., & Sestito, P. (1998). Contending theories and institutional complexities. European University Institute, Florence, Policy Papers, RSC No. 98/1.
Commission, E. (2003). 2003 Adopted employment guidelines.
Coughlin, P., & Nitzan, A. (1981). Electoral outcomes with probabilistic voting and Nash social welfare maxima. Journal of Public Economics, 15, 113–122.
DiTella, R., & MacCulloch, R. J. (2002). The determination of unemployment benefits. Journal of Labor Economics, 20, 404–434.
Fogli, A. (2000). Endogenous labor market rigidities and family ties. Discussion Paper, New York University, September 2000.
Freeman, R. B. (1998). War of the models: Which labour market institutions for the 21st century? Labour Economics, 5, 1–24.
Goerke, L., Pannenberg, M., & Ursprung, H. (2006). A positive theory of the earnings relationship of unemployment benefits. Mimeo, University of Konstanz, July 2006.
Hassler, J., Rodriguez Mora, J. V., Storesletten, K., & Zilibotti, F. (2005). A positive theory of geographic mobility and social insurance. International Economic Review, 46, 263–303.
Laitner, J. (1997). Intergenerational and interhousehold economic links. In M. Rosenzweig & O. Stark (Eds.), Handbook of population and family economics (Vol. 1A, pp. 189–238). Amsterdam: Elsevier.
Lindbeck, A., & Weibull, J. W. (1987). Balanced-budget redistribution as the outcome of political competition. Public Choice, 52, 273–297.
Martin, J. (1996). Measures of replacement rates for the purpose of international comparisons: A note. OECD Economic Studies, 26, 99–115.
McElroy, M. B. (1985). The joint determination of household membership and market work: The case of young men. Journal of Labor Economics, 3, 293–316.
Mueller, D. C. (2003). Public choice III. Cambridge: Cambridge University Press.
Neugart, M. (2005). Unemployment insurance: The role of electoral systems and regional labor markets. European Journal of Political Economy, 21, 815–829.
OECD (2001). Employment outlook 2001. OECD, Paris.
OECD (2004a). Benefits and wages. OECD, Paris.
OECD (2004b). Employment outlook 2004. OECD, Paris.
Overbye, E. (1995). Explaining welfare spending. Public Choice, 83, 313–335.
Persson, T., & Tabellini, G. (2000). Political economics, explaining economic policy. MIT Press.
Rodrik, D. (1998). Why do more open economies have bigger governments? Journal of Political Economy, 105, 997–1032.
Rosenzweig, M. R., & Wolpin, K. I. (1993). Intergenerational support and the life-cycle incomes of young men and their parents: Human capital investments, coresidence, and intergenerational financial transfers. Journal of Labor Economics, 11, 84–112.
Saint-Paul, G. (1996). Exploring the political economy of labour market institutions. Economic Policy, 23, 265–315.
Saint-Paul, G. (2002). The political economy of employment protection. Journal of Political Economy, 110, 672–704.
Schoeni, R. F. (2002). Does unemployment insurance displace familial assistance? Public Choice, 110, 99–119.
Wilthagen, T. (1998). Flexicurity: A new paradigm for labour market policy reform? Wissenschaftszentrum Berlin für Sozialforschung, Discussion Paper FS I 98-202.
Wright, R. (1986). The redistributive roles of unemployment insurance and the dynamics of voting. Journal of Public Economics, 31, 377–399.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Neugart, M. The choice of insurance in the labor market. Public Choice 134, 445–462 (2008). https://doi.org/10.1007/s11127-007-9238-x
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-007-9238-x