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Does unemployment insurance affect wage formation and unemployment?

Economic theory predicts that unions want to increase their members’ wages, but that large salary increases are associated with a higher risk of unemployment. If union members face a sharper earnings reduction in the event of displacement, the unions’ perceived cost of wage increases is higher. Hence, wages and unemployment should be lower if the share of workers covered by unemployment insurance (UI) is reduced. The aim of this project is to study the effect of UI-coverage on wage formation and unemployment. To this end, we will exploit the reduction in the share of workers covered by UI after the increase and differentiation of the UI-premium in 2007. We will exploit the differential decrease in the take-up rate of UI across industries to study the effect of UI-coverage on wage formation and unemployment.


Published by:

Anahid Zakinian

Changed:

10/10/2018