Provisions of the welfare state: employment protection versus unemployment insurance

Employment protection and unemployment benefits are considered as the most prominent insurance devices for workers to protect themselves against the risk of unemployment. It occurs that societies either choose a high level of employment protection relative to unemployment
benefits or vice versa. This paper explains where countries
locate on this trade-off. It is argued that higher coverage of voters out-of-the labor force with intra household transfers yields a politico economic equilibrium with relatively high employment protection and relatively low unemployment benefits. Cross country data is presented
that corroborates the outcomes of the model. While positive in nature the findings bear high relevance for policymakers. They suggest that ‘flexicurity’ policies might fail if their implementation does not adequately
address the causes of countries’ current institutional settings - here family ties that express themselves in preferences over certain welfare state arrangements.

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