Indexation Of Unemployment Benefits To Previous Earnings, Employment And Wages

In most OECD countries, unemployment benefits are tied to
individual previous labor earnings. We study the progressivity of
this indexation with regard to its effects on employment, output
and wages in four equilibrinin models of the labor market keeping
the level of unemployment benefits fixed. In the two cases of
competitive labor markets and decentralized wage bargaining,
employment and output increase, while wages decrease with the
degree of indexation. In the model with search unemployment and
Nash wage bargaining, all wages, employment and output increase,
while die indexation of employirient benefits to previous carnings
has no effect in the case of efficiency wages. In addition, our
results suggest that a more progressive mdexation of unemployment
benefits to labor earnings is wellare enhancing.