Skip to main content

Advertisement

SpringerLink
Log in

Equity and efficiency in unemployment insurance

  • Published:
De Economist Aims and scope Submit manuscript

Summary

This paper is concerned with equity and efficiency in unemployment insurance. It examines the rationales for unemployment insurance, or more generally, social security. It stresses that social security is a second-best solution, since, in practice, taxes that do not distort economic decisions and benefits without moral hazard are impossible. The paper determines a relation between the feasible levels of equity and efficiency,i.e., the output possibilities curve. Three typical views on equity are confronted with this output possibilities curve: the extreme liberal view, the moderate liberal view and the egalitarian view. We construct two output possibilities curves for unemployment insurance in The Netherlands: one curve, assuming that the Dutch labour market is characterized by excess supply and another curve, assuming that the Dutch labour market is instantaneously cleared by flexible wages. The equilibrium model yields substantially higher efficiency costs of Dutch unemployment insurance than the disequilibrium model. Finally, we calculate the output gains of a mini-system of unemployment insurance. Again, the results indicate that much depends on what is in the eye of the beholder.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Albrecht, J.W. and B. Axell (1984), ‘An Equilibrium Model of Search Unemployment,’Journal of Political Economy, 92, pp. 824–840.

    Google Scholar 

  • Arrow, K.J. (1963), ‘Uncertainty and the Economics of Medical Care,’American Economic Review, 53, pp. 941–973.

    Google Scholar 

  • Arrow, K.J. (1968), ‘The Economics of Moral Hazard: Further Comment,’American Economic Review, 58, pp. 537–539.

    Google Scholar 

  • Arrow, K.J. (1981), ‘Optimal and Voluntary Income Distribution,’ in: S. Rosefielde (ed.),Economic Welfare and the Economics of Soviet Socialism, Cambridge, pp. 267–283.

  • Atkinson, A.B. (1987), ‘Income Maintenance and Social Insurance,’ in: A.J. Auerbach and M.S. Feldstein (eds.),Handbook of Public Economics, Amsterdam, pp. 779–908.

  • Atkinson, A.B. (1989),Poverty and Social Security, Hertfordshire.

  • Atkinson, A.B., and J. Micklewright (1991), ‘Unemployment Compensation and Labor Market Transitions: A Critical Review,’Journal of Economic Literature, 29, pp. 1697–1727.

    Google Scholar 

  • Baily, M.N. (1978), ‘Some Aspects of Optimal Unemployment Insurance,’Journal of Public Economics, 10, pp. 379–402.

    Google Scholar 

  • Björklund, A. and B. Holmlund (1991), ‘The Economics of Unemployment Insurance: The Case of Sweden,’ in: A. Björklund, R. Haveman, R. Hollister and B. Holmlund (eds.),Labour Market Policy and Unemployment Insurance, Oxford, pp. 101–178.

  • Boadway, R.W. and A.J. Oswald (1983), ‘Unemployment Insurance and Redistributive Taxation,’Journal of Public Economics, 20, pp. 193–210.

    Google Scholar 

  • Breit, W. (1974), ‘Income Redistribution and Efficiency Norms,’ in: H.M. Hochman and G.E. Peterson (eds.),Redistribution through Public Choice, New York, pp. 3–21.

  • Broek, L.F.M.P. van den (1988), ‘Economische efficiëntie bij inkomensoverdrachten: enkele eenvoudige calculaties,’ Discussienota 8802, 's Gravenhage, Ministerie van Economische Zaken.

    Google Scholar 

  • Browning, F.K. and W.R. Johnson (1984), ‘The Trade-Off between Equality and Efficiency,’Journal of Political Economy, 92, pp. 175–203.

    Google Scholar 

  • Butter, F.A.G. den and B. Compaijen (1991), ‘Labour Market Effects of the Social Security System in The Netherlands: A Comparison of Equilibrium with Disequilibrium Simulation Models,’De Economist, 139, pp. 26–42.

    Google Scholar 

  • Creedy, J. and R. Disney (1985),Social Insurance in Transition, Oxford.

  • Danziger, S., R. Haveman and R. Plotnick (1981), ‘How Income Transfer Programs Affect Work, Savings and the Income Distribution: A Critical Review,’Journal of Economic Literature, 19, pp. 975–1028.

    Google Scholar 

  • Disney, R. (1981), ‘Unemployment Insurance in Britain,’ in: J. Creedy (ed.),The Economics of Unemployment in Britain, London, pp. 151–185.

  • Douben, N.H. (1986),Economic en sociale zekerheid, Groningen, Wolters-Noordhoff.

    Google Scholar 

  • Ehrlich, I. and G.S. Becker, ‘Market Insurance, Self-Insurance, and Self Protection,’Journal of Political Economy, 80, pp. 623–648.

  • Flemming, J.S. (1978), ‘Aspects of Optimal Unemployment Insurance: Search, Leisure, Savings and Capital Market Imperfections,’Journal of Public Economics, pp. 403–425.

  • Graafland, J.J. (1990),Persistent Unemployment, Wages and Hysteresis, Helmond.

  • Groenveld, K. (1991), ‘Van verzorgingsstaat naar waarborgstaat,’Economisch Statistische Berichten, 76, pp. 986–989.

    Google Scholar 

  • Groot, W. and G. Jehoel-Gijsbers (1990), ‘De invloed van uitkeringshoogte op werkloosheidsduur,’Economisch-Statistische Berichten, 75, pp. 177–181.

    Google Scholar 

  • Harsanyi, J.C. (1953), ‘Cardinal Utility in Welfare Economics and in the Theory of Risk-taking,’Journal of Political Economy, 61, pp. 434–435.

    Google Scholar 

  • Harsanyi, J.C. (1955), ‘Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility,’Journal of Political Economy, 63, pp. 309–321.

    Google Scholar 

  • Hochman, H.M., and J.D. Rodgers (1969), ‘Pareto Optimal Redistribution,’American Economic Review, 59, pp. 542–557.

    Google Scholar 

  • Hochman, H.M., and J.D. Rodgers (1970), ‘Pareto Optimal Redistribution: Reply,’American Economic Review, 60, pp. 997–1002.

    Google Scholar 

  • Jones, S.R.G. (1986), ‘Unemployment Insurance and Involuntary Unemployment: The Case of Adverse Selection,’Journal of Public Economics, 30, pp. 317–328.

    Google Scholar 

  • Kam, C.A. de, and F.G. van Herwaarden (1991), ‘Sociale Zekerheid: ministelsel een alternatief?,’ in: H. de Groot and C.A. de Kam (eds.),Jaarboek Overheidsuitgaven 1992, Schoonhoven, pp. 111–132.

  • Layard, R., S. Nickell and R. Jackman (1991),Unemployment: Macroeconomic Performance and the Labour Market, Oxford.

  • Mortensen, D.T. (1983), ‘A Welfare Analysis of Unemployment Insurance: Variations on Second-best Themes,’Carnegie-Rochester Conference Series on Public Policy, 19, pp. 67–97.

    Google Scholar 

  • Organisation for Economic Co-operation and Development (OECD, 1991),Employment Outlook, Paris.

  • Okun, A.M. (1975),Equality and Efficiency, Washington D.C., Brookings Institution.

    Google Scholar 

  • Orr, L.L. (1976), ‘Income Transfers as a Public Good: An Application to AFDC,’American Economic Review, 66, pp. 359–371.

    Google Scholar 

  • Ours, J.C. van (1991), ‘The Efficiency of the Dutch Labour Market in Matching Unemployment and Vacancies,’De Economist, 139, pp. 358–378.

    Google Scholar 

  • Pauly, M.V. (1968), ‘The Economics of Moral Hazard: Comment,’American Economic Review, 58, pp. 531–537.

    Google Scholar 

  • Rawls, J. (1971),A Theory of Justice, Oxford.

  • Rothschild, M. and J.E. Stiglitz (1976), ‘Equilibrium in Competitive Insurance Markets,’Quarterly Journal of Economics, 90, pp. 629–650.

    Google Scholar 

  • Samuelson, P.A. (1964), ‘A.P. Lerner at Sixty,’Review of Economic Studies, 31, pp. 169–178.

    Google Scholar 

  • Shavell, S. (1979), ‘On Moral Hazard and Insurance,’Quarterly Journal of Economics, 93, pp. 541–562.

    Google Scholar 

  • Spence, M. (1978), ‘Product Differentiation and Performance in Insurance Markets,’Journal of Public Economics, 10, pp. 427–447.

    Google Scholar 

  • Springer, K.A. (1991),From Micro to Macro in Disequilibrium Economics: A New Keynesian Analysis of the Dutch Unemployment Problem, Amsterdam.

  • Thurow, L.G. (1971), ‘The Income Distribution as a Pure Public Good,’Quarterly Journal of Economics, 85, pp. 321–336.

    Google Scholar 

  • Vijlbrief, J.A. (1992),Unemployment Insurance and the Dutch Labour Market, Amsterdam.

Download references

Author information

Authors and Affiliations

  1. Ministry of Economic Affairs, The Netherlands

    J. A. Vijlbrief

Authors
  1. J. A. Vijlbrief
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

At the time of writing research fellow at the Applied Labour Economics Research Team (ALERT) of the Vrije Universiteit, Amsterdam and the Tinbergen Institute. The author thanks an anonymous referee ofDe Economist, Frank den Butter, Bernard Compaijen, Edmond Malinvaud, Christopher Pissarides, Niels Westergaard-Nielsen, Rob van de Wijngaert, Gerrit Zalm and the participants of the ALERT/Tinbergen Institute workshops ‘Modelling the Labour Market’ (6–8 January 1992 at the Vrije Universiteit, Amsterdam) and ‘Dutch Thoughts on Unemployment’ (18 March 1992 at the Vrije Universiteit, Amsterdam) for their useful comments on earlier versions of this paper. The usual disclaimer applies.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Vijlbrief, J.A. Equity and efficiency in unemployment insurance. De Economist 141, 214–237 (1993). https://doi.org/10.1007/BF01717381

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01717381

Keywords

Search

Navigation