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Cahuc, Pierre; Malherbet, Franck
Journal of public economics, 03/2004, Volume: 88, Issue: 3Journal Article
The systematic use of experience rating is an original feature of the U.S. unemployment benefits system. At first glance, experience rating does not appear to be a desirable choice for a lot of European labor markets, which are characterized by high firing costs. We provide a simple matching model of a rigid labor market that includes firing costs, temporary jobs and a minimum wage in order to analyze this issue. Our analysis leads us to argue that experience rating is likely to reduce unemployment and improve the welfare of low-skilled workers in France, and more generally for low-skilled workers in a typical, rigid Continental European labor market.
