Working Paper: CEPR ID: DP3614
Authors: Olivier Lharidon; Franck Malherbet
Abstract: Experience rating which is often treated as a simple adjustment cost is an original feature of the US unemployment benefit system. This Paper extensively addresses the effect of experience rating as an alternative to standard job protection. We provide a simple matching model of unemployment that handles both idiosyncratic and aggregate shocks. In such a framework, we show that experience rating tends to increase labour market performances. Indeed, moving toward an experience rated system tends to stabilize employment. Additionally, for reasonable parameter values average employment and production are increased over the cycle. Therefore, it may be worthwhile to shift standard job protection measures toward a more experience rated system.
Keywords: Employment Fluctuation; Experience Rating; Job Protection; Matching Models
JEL Codes: J23; J38; J41; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| experience rating (J33) | stabilize employment (J68) |
| experience rating (J33) | reduce employment fluctuations (J65) |
| experience rating (J33) | average employment (J20) |
| experience rating (J33) | production (L23) |
| experience rating (J33) | job destruction (J63) |
| experience rating (J33) | job creation (J68) |
| experience rating (J33) | employment fluctuations (J63) |