Experience Rated Unemployment Insurance : was Europe Right Not to Choose It?

Theoretical economic literature dealing with the financing of unemployment insurance finds that experience rating helps to solve the externality caused by individual efficient but socially inefficient dismissals and, hence, reduces unemployment. This is, however, found in models where workers and firms bargain over wages individually. Introducing unionized wage bargaining - which at in least continental Europe is a defining feature of the economy - generally gives highly ambiguous results; even opposite results can be obtained showing that the introduction of experience rating increases unemployment