Public Choice

, Volume 145, Issue 1–2, pp 137–163

A positive theory of the earnings relationship of unemployment benefits

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

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 relationship Panel data Political support maximization Wage bargaining Unemployment benefits 

JEL Classification

D72 J51 J65 

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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

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