Unemployment insurance and wage formation

Mathias von Buxhoeveden ()
Additional contact information
Mathias von Buxhoeveden: IFAU - Institute for Evaluation of Labour Market and Education Policy, Postal: Institute for Evaluation of Labour Market and Education Policy, P O Box 513, SE-751 20 Uppsala, Sweden

No 2019:13, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: Wage setting models typically posit a tight relationship between the generosity of unemployment insurance (UI) and equilibrium wages. This paper estimates the effect of UI on workers’ wages. I build on a unique feature of the unemployment policy in Sweden, where workers can opt to buy supplement UI coverage above a minimum mandated level. In January 2007, the government sharply increased the price of UI, and the share of workers with supplement coverage fell from 90% to 80%. I exploit variation in the price of UI across industries to measure the effect of industry level UI-coverage on wages. My estimates suggest that a 10 percentage point reduction in the share of workers covered by supplement UI reduce wages by 5%. Since I rely on variation in UI-coverage at the industry level, these estimates contain wage adjustments from collective and individual level bargaining. Finally, I use the estimated UI-wage effect to derive bounds on worker bargaining power in a simple DMP model and find that it can be at most 0.12. This evidence support wage setting mechanisms that tie wages to the generosity of UI.

Keywords: unemployment; insurance; youth; labor; market; wage; formation (search for similar items in EconPapers)
JEL-codes: J31 J65 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019-06-05
New Economics Papers: this item is included in nep-ias, nep-lab and nep-ltv
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.ifau.se/globalassets/pdf/se/2019/wp-20 ... d-wage-formation.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2019_013

Access Statistics for this paper

More papers in Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy IFAU, P O Box 513, SE-751 20 Uppsala, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Ali Ghooloo ( this e-mail address is bad, please contact ).