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Incentive Contracts and Efficient Unemployment Benefits

Demougin, Dominique and Helm, Carsten (2008):
Incentive Contracts and Efficient Unemployment Benefits.
In: Darmstadt Discussion Papers in Economics, [Online-Edition: http://tuprints.ulb.tu-darmstadt.de/4735/],
[Report]

Abstract

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the worker's position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Item Type: Report
Erschienen: 2008
Creators: Demougin, Dominique and Helm, Carsten
Title: Incentive Contracts and Efficient Unemployment Benefits
Language: English
Abstract:

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the worker's position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 191
Uncontrolled Keywords: Unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalisation
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Angewandte Mikroökonomik und Institutionenökonomik
Date Deposited: 31 Jan 2016 20:59
Official URL: http://tuprints.ulb.tu-darmstadt.de/4735/
URN: urn:nbn:de:tuda-tuprints-47352
Additional Information:

JEL - Classification : J65, D82, J41, E24

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