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Models BC and BR

Figure 6 indicates, which organisational form of UI the agents prefer if the benefit rate(s) is (are) adjusted to balance the UI´s budget. The definitions of the curves are analogous to the previous subsection, given by equations (18) and (19). The figure shows, that it has an influence on the preferences of the firms, whether the tax rate or the benefit rate is adjusted to balance the budget of UI. With endogenous benefit rate, firms from the rich region make higher profits if UI is central, while firms from the poor region are better off with regional UI. In the former case, it is the other way around. In comparison, workers from both regions are always better off with central UI. As with endogenous tax rate, the efficiency criterion supports central UI.

Figure 6: Preferences and efficiency with endogenous benefit rate
\fbox{
\includegraphics*[2cm,1.9cm][13.1cm,10.1cm]{bcbr.eps}}

The reason for the diverging results concerning the relation of profits in the two cases lies in the determination of wages. Here, a regionalisation of UI leads -compared to central UI - to higher (lower) equilibrium benefit rates in the rich (poor) region. A higher (lower) benefit rate unambiguously leads to higher (lower) equilibrium wages in the context of the assumed bargaining setup. This causes labour demand and profits to shrink (increase). The effects on expected utilities and thus on migration are contradictory, though. On the one hand, workers from the rich region have higher wages and a higher benefit rate. On the other hand, the probability of becoming employed is smaller in equilibrium, and vice versa for the poor region. With the assumed functions and parameter values, however, equilibrium migration from the poor to the rich region increases, if UI is regionalised. The costs connected with this additional migration have a negative impact on the efficiency measure, which supports thus central UI. Migration equilibrates the differences of the expected utiliy between workers because it increases the expected utility in the origin region, and it lowers the expected utility in the destination region. Hence, workers from both regions prefer central UI. The latter result is thus independent of which parameter of the UI serves to equilibrate the budget.


next up previous
Next: Conclusion Up: Calibration and comparison Previous: Models TC and TR
Helge Sanner: Regional Unemployment Insurance, Potsdam 2001