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Oxford Economic Papers Advance Access published online on June 3, 2004
Oxford Economic Papers, doi:10.1093/oep/gpf050
Copyright © 2004 Oxford University Press.
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Article

Dynamic wage bargaining if benefits are tied to individual wages

Thomas Beissinger 1* Hartmut Egger 2

1 Department of Economics, University of Regensburg, D-93040 Regensburg, Germany; IZA, Bonn, Germany
2 Socioeconomic Institute, University of Zurich, Zurich, Switzerland

* To whom correspondence should be addressed. E-mail: thomas.beissinger{at}wiwi.uni-regensburg.de.


  Abstract

In dynamic wage bargaining models it is usually assumed that individual unemployment benefits are a fraction of the average wage level. In most countries, however, unemployment benefits are instead tied to the previous level of individually earned wages. We show how the analysis has to be modified if this fact is taken into account and compare our findings for the wage-setting curve with outcomes under other unemployment compensation schemes. From this comparison it becomes evident how the shape and position of the wage-setting curve depends on the specification of the unemployment benefit system. We also demonstrate that a reduction of unemployment benefits of those who become unemployed after the bargaining period leads to higher equilibrium unemployment.


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