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Fath, Julia
Fuest, Clemens
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 663
This paper explores how the introduction of an experience rated system of unemployment insurance affects employment and welfare in a model where implicit contracts between firms and workers give rise to wage rigidities and unemployment. In the literature, it has been argued that experience rated systems of unemployment insurance may reduce long term employment as firms anticipate the higher costs of layoffs implied by experience rating. Our analysis shows that, despite the higher costs of layoffs, the introduction of experience rating may increase long term employment. Moreover, it unambiguously increases welfare.
unemployment insurance
labour markets
implicit contracts
Document Type: 
Working Paper

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