On Unemployment Insurance and Experience Rating

Abstract: There have been numerous studies, both theoretical and empirical, dealing with how the degree of experience rating affects employment. The results have been often contradicting, giving ground for ongoing debate among the economists. Here in this thesis I will present the most central studies done concerning the effects on employment induced by layoff costs and UI payroll tax in particular. A special interest will be put on the implicit-contract model, since it appears to be especially useful when studying the effects of experience rating. The theoretical approaches and the existing empirical evidence will be discussed. By doing this survey I will make an attempt in explaining and summarizing the crucial and sometimes contradicting conclusions made though the years, so that a reader unfamiliar with those concepts will be able to easily grasp.