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Abstract

We analyze the implications of two-tier unemployment compensation systems with nonautomatic eligibility in an equilibium matching model with Nash bargaining. As eligibility for UI does not automatically follow from employment, the two types of unemployed workers have different threat points, which delivers equilibrium wage dispersion. The parameters of the model are estimated for France, and the model is also calibrated for Denmark and the
U.S. Re-entitlement effects are shown to be sizeable for all three countries. For France, reentitlement effects lower by 15% the rise in the wage and by 25% the rise in unemployment
following a 10% increase in the benefit level. Finally, we show that in all three countries the optimal compensation system is characterized by time-decreasing unemployment benefits and non-automatic eligibility for UI, with higher levels of both UI and UA benefits, a smaller decrease
in benefits over time, and a longer employment duration required for UI eligibility than in the current system.

Publication Type:	Article
Additional Information:	NOTICE: this is the author’s version of a work that was accepted for publication in <Journal title>. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Labour Economics, Volume 17, Issue 2, April 2010, Pages 368–382, http://dx.doi.org/10.1016/j.labeco.2009.11.007.
Publisher Keywords:	Social Sciences, Economics, Business & Economics, ECONOMICS, Re-entitlement effects, Unemployment compensation, Matching, INSURANCE, SEARCH, EQUILIBRIUM, DURATION, BENEFITS, MODEL
Subjects:	H Social Sciences > HB Economic Theory
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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