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Economic Theory

, Volume 52, Issue 3, pp 941–977 | Cite as

A coalitional theory of unemployment insurance and employment protection

  • Vincent AnesiEmail author
  • Philippe De Donder
Research Article

Abstract

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria belonging to the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.

Keywords

Bidimensional voting Party competition Citizen-candidate Coalition formation Labor market rigidities 

JEL Classification

D72 J65 J68 

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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Department of Economics, School of EconomicsUniversity of NottinghamNottinghamUK
  2. 2.GREMAQ-CNRS, IDEIToulouse School of EconomicsToulouseFrance

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