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Measuring Unemployment Insurance Generosity

  • Stéphane Pallage (a1), Lyle Scruggs (a2) and Christian Zimmermann (a3)
Abstract

Unemployment insurance policies are multidimensional objects, with variable waiting periods, eligibility duration, benefit levels, and asset tests, making intertemporal or international comparisons very difficult. Furthermore, labor market conditions, such as the likelihood and duration of unemployment, matter when assessing the generosity of different policies. In this article, we develop a new methodology to measure the generosity of unemployment insurance programs with a single metric. We build a first model with all characteristics of the complex unemployment insurance policy. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model, similar in all aspects but one: the unemployment insurance policy is one-dimensional (no waiting periods, eligibility limits, or asset tests, but constant benefits). We then determine which level of benefits in this second model makes society indifferent between both policies. We apply this measurement strategy to the unemployment insurance program of the United Kingdom.

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Christoffer Green-Pedersen , and Markus Haverland . 2002. The new politics and scholarship of the welfare state. Journal of European Social Policy 12 (February): 243–51.

Christoffer Green-Pedersen , and Markus Haverland . 2002. The new politics and scholarship of the welfare state. Journal of European Social Policy 12 (February): 243–51.

Gary D. Hansen , and Ayse Imrohoroğlu . 1992. The role of unemployment insurance in an economy with liquidity constraints and moral hazard. Journal of Political Economy 100(1): 118–42.

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Herbert Kitschelt . 2001. Partisan competition and welfare state retrenchment: When do politicians choose unpopular policies? In The new politics of the welfare state, ed. Paul Pierson , 265302. Oxford: Oxford University Press.

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Lyle Scruggs . 2006. The generosity of social insurance, 1971–2002. Oxford Review of Economic Policy 22(3): 349–64.

Steven Shavell , and Laurence Weiss . 1979. The optimal payment of unemployment insurance benefits over time. Journal of Political Economy 87(6): 1347–62.

Steven Shavell , and Laurence Weiss . 1979. The optimal payment of unemployment insurance benefits over time. Journal of Political Economy 87(6): 1347–62.

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Political Analysis
  • ISSN: 1047-1987
  • EISSN: 1476-4989
  • URL: /core/journals/political-analysis
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