Public Choice

, Volume 145, Issue 1, pp 137–163

A positive theory of the earnings relationship of unemployment benefits

  • Laszlo Goerke
  • Markus Pannenberg
  • Heinrich W. Ursprung
Article

DOI: 10.1007/s11127-009-9558-0

Cite this article as:
Goerke, L., Pannenberg, M. & Ursprung, H.W. Public Choice (2010) 145: 137. doi:10.1007/s11127-009-9558-0
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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.

Earnings relationshipPanel dataPolitical support maximizationWage bargainingUnemployment benefits

JEL Classification

D72J51J65

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Laszlo Goerke
    • 1
  • Markus Pannenberg
    • 2
  • Heinrich W. Ursprung
    • 3
  1. 1.University of TübingenTübingenGermany
  2. 2.DIW BerlinUniversity of Applied Sciences BielefeldBielefeldGermany
  3. 3.University of KonstanzKonstanzGermany