The interplay between insurance and assistance in unemployment compensation systems», mimeo

The interplay between the insurance and assistance components of unemployment com-pensation systems is analyzed in a matching framework à la Pissarides. We assume that when laid-off, a worker whose employment spell has lasted long enough receives, during a limited period of time, insurance benefits which depend on his past wage. The unemployed who are not eligible for insurance benefits or have exhausted their rights receive assistance benefits. The variables and parameters of the model are estimated using the French sample of the European Panel Survey (1993-1998). The model seems quite good at reproducing the main features of the French labour market. We simulate the effects of different reforms of the French unemployment compensation system, taking into account their financing. The quantitative impact on the unemployment rate of raising benefits is small and comparable for unemployment insurance (UI) and assistance (UA). Both policies ameliorate slightly the social welfare. However, while raising UA improves the welfare of all the workers, raising UI has a negative impact on UA recipients and on the employed who do not verify the eligibility criteria for UI. Increasing the duration of UI entitlement reduces slightly unemployment. This is partly due to a reduction of the wages earned by the workers who do not meet the eligibility criteria. The winners are the unemployed workers and the losers the employed ones. On the whole, the social welfare is slightly improved. Lastly, reducing the duration of the employment spell required for UI entitlement decreases the rate of unemployment and improves the welfare of all the individuals