Unemployment Insurance and Inequality

This paper examines the impact of higher unemployment insurance on the fraction of the work force paying into an unemployment insurance fond, wage differences and therefore inquality and education letting worker initial wealth being important for the decisions and implied values. As usually higher educated workers receive a lower fraction of their wages as unemployment insurance, we consider how the impact on labour market performance and wage differences and thereby inequality differ dependent on whether educated or uneducated workers receive higher benefits. The model can help shed light on the the puzzle why only some workers, for given educational level, pay into an unemployment insurance fond, the lower wealth mobility than income mobility as well as the relative compressed wage structure in countries with generous social assistance as well as unemployment insurance for low income workers, in particular. This also seen in a context where increased immigration into some countries may provide a relative higher fraction of the labour force with little initial wealth.